Treasuries Move Sharply Lower As Fed Forecasts Fewer Rate Cuts In 2025

(RTTNews) - Treasuries showed a lack of direction throughout much of the session on Wednesday before moving sharply lower in the final hour of trading.

Bond prices saw a steep drop in late-day trading after spending most of the session lingering near the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, surged 10.9 basis points to 4.494 percent.

The ten-year yield more than offset the modest decrease seen over the two previous sessions, reaching its highest closing level since late May.

The late-day sell-off by treasuries came after the Federal Reserve announced its widely expected decision to lower interest rates by a quarter point but forecast fewer than previously estimated rate cuts next year.

The Fed said it decided to lower the target range for the federal funds rate by 25 basis points to 4.25 to 4.50 percent, matching the rate cut seen in early November.

The central bank also described the economic outlook as "uncertain" and said the risks to both sides of its dual mandate are "roughly in balance."

With the rate cut almost universally expected, the focus of the announcement was on Fed officials' latest economic projections, which indicate fewer than previously forecast rate cuts next year.

The latest projections suggest rates will be in a range of 3.75 to 4.0 percent by the end of 2025 compared to the range of 3.25 to 3.50 percent forecast in September.

Assuming the Fed lowers rates by a quarter point, the projections point to just two rate cuts next year compared to the four previously forecast.

The forecast for fewer rate cuts comes as Fed officials expect inflation to come in hotter than previously estimated in 2025, with consumer price growth expected at 2.5 percent compared to the 2.1 percent forecast in September.

During his post-meeting press conference, Fed Chair Jerome Powell said the central bank will be looking for additional progress on inflation before considering further rate cuts, noting annual price growth has recently been moving sideways.

Notably, the decision to lower rates at this meeting was not unanimous, as Cleveland Fed President Beth M. Hammack preferred to leave rates unchanged.

The Fed's next monetary policy meeting is scheduled for January 28-29, with CME Group's FedWatch Tool currently indicating a 90.3 percent chance the central bank will leave rates unchanged.

Trading on Thursday may continued to be impacted by reaction to the Fed announcement, traders are also likely to keep an eye on reports on weekly jobless claims and existing home sales.