10-year yields hit 16-year peak as Fed seen higher for longer
Treasury yields rose to 16-year highs on Thursday, a day after the Federal Reserve surprised investors by flagging the potential for an additional rate hike, and an expectation for fewer cuts next year.
The U.S. central bank held interest rates steady, as was widely expected, and said that its benchmark overnight interest rate may still be lifted one more time this year to a peak 5.50%-5.75% range.
It also now expects half a percentage point of rate cuts in 2024.
As of June, Fed officials had expected to cut rates by a full percentage point next year.
«It caught the markets by surprise because there was this sense that three months of encouraging inflation data would kind of bring down the temperature at the Fed,» said Will Compernolle, macro strategist at FHN Financial in New York.
«But, for a number of reasons, they still feel like they need to stay hawkish — they need to stay very ready to continue to be restrictive,» Compernolle added.
Fed chairman Jerome Powell on Wednesday said that a «solid» economy with still «strong» job growth will allow the central bank to keep that additional pressure on financial conditions through 2025 with much less of a cost to the economy and labor market than in previous U.S. inflation battles.
He added that «we want to see convincing evidence really, that we have reached the appropriate level» of interest rates to return inflation to the Fed's 2% target.
Whether the Fed follows through with its hawkish outlook will depend on economic data.
Fed funds futures traders are pricing in only a partial chance of an additional rate hike, with a 32% probability in November and 45% chance by December, according to the CME Group's FedWatch Tool.
Benchmark 10-year note yields hit 4.490%, the
