U.S. Treasury Market Advances as Powell Prioritizes Caution Amid Inflation and Job Market Risks
U.S. Treasury Market bond prices edged higher after Federal Reserve Chair Jerome Powell reaffirmed a cautious stance on future rate cuts. Despite mounting risks of elevated inflation and rising unemployment, the Fed chose to leave interest rates unchanged.
Stagflation Warnings Heighten Market Caution
Following Wednesday’s decision, yields on longer-term bonds (five years or more) fell by at least two basis points. At the same time, growing trade tensions raised concerns about potential stagflation—economic stagnation combined with persistent inflation.
10-Year Yield Falls, Dollar Strengthens
The 10-year Treasury yield dropped to 4.27%, while the 2-year yield stabilized at 3.78% after a brief dip. The Bloomberg Dollar Spot Index rose for the first time in four sessions, lifted by the Fed’s firm tone, with the dollar gaining against all G-10 currencies.
Trump Reignites Trade Concerns After Fed Decision
Moments after the Fed’s announcement, Donald Trump reiterated his opposition to reducing tariffs on China. This stance underscores the lingering impact of trade tensions on monetary policy and global markets.
U.S. and China Resume Trade Talks in Switzerland
U.S. and China Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will travel to Switzerland…
Inflation, Weak Growth, and Job Market Under Pressure
Powell warned that maintaining or raising tariffs could worsen inflation, constrain economic growth, and increase unemployment. His remarks highlight the complex interplay between fiscal and monetary policy in today’s volatile global environment.
Mixed Forecasts on the Fed’s Next Moves
While some analysts anticipate up to 125 basis points in rate cuts during 2025, others foresee just two or three reductions, beginning in July or September. Market expectations have adjusted to 76 basis points in total cuts—far from the four reductions projected just a week ago.
Fed Holds Steady Amid Uncertainty
Ashish Shah, CIO of Fixed Income at Goldman Sachs Asset Management, stated that the Fed is “stuck in a wait-and-see pattern” until greater economic clarity emerges. The path ahead hinges on whether inflation or economic slowdown becomes the dominant risk.
