The Fed’s Uncertain Destination Troubles the Bond Market
The central bank cut interest rates by 50 basis points and yet 10-year Treasury yields, a benchmark for mortgages, actually went up.
Where to Next?
Photographer: Anna Moneymaker/Getty Images
The Federal Reserve on Wednesday began its policy easing with a bang. Much of the focus was on its decision to cut interest rates by half a percentage point from a two-decade high. But the key question for the bond market is where rates will land once all is said and done. Nobody knows for sure, and Chair Jerome Powell injected enough uncertainty to ensure a choppy ride ahead.
The Fed’s Summary of Economic Projections showed that the median respondent among Federal Reserve Board members and Federal Reserve Bank presidents now sees the “longer-run” federal funds rate landing at around 2.9%, up from about 2.8% in its previous quarterly update. That’s the rate that policymakers think will prevail in a balanced economy with a strong labor market and low and stable inflation.