US Treasury yields firm on Fed’s signals about gradual easing ahead

US Treasury yields are stable despite growing anticipation for the Fed to drop rates again after a 50 basis point decrease last week. Both Atlanta’s Bostic and Minneapolis Fed President Kashkari favor modest rate reductions; Kashkari projects that rates will reach 4.4% by the end of 2024. Bostic downplays the possibility of further 50-bps rate cuts, but Chicago Fed’s Austan Goolsbee indicates that more rate cuts are necessary. Amidst growing speculation that the US Federal Reserve (Fed) will reduce borrowing costs for the second consecutive meeting, following last week’s 50 basis point decrease, US Treasury yields ended the session flat.

Fed members express confidence in the inflation trajectory but caution about additional reduction. Fed officials acknowledged that risks are skewed to the upside and had grown concerned about the job situation. They became increasingly certain that prices are rising steadily enough to meet the Fed’s 2% inflation target.

Neel Kashkari, the president of the Minneapolis Fed, stated on Monday that the 50 basis point (bps) reduction was appropriate and that he anticipates rates to end 2024 at about 4.4%. Although he stated that they wouldn’t be reducing rates in 50 bps increments, Atlanta Fed President Raphael Bostic mirrored some of his remarks.

Bostic also stated that he didn’t think the unemployment rate would rise much more and that there were now more hazards in the job market. Lastly, Chicago Fed President Austan Goolsbee declared that the unemployment rate is at a point that many view as full employment and that many additional rate cuts are required over the course of the next year.

S&P Global released the September Flash PMIs, which showed conflicting results about the US economy in terms of data. The services PMI came in at 55.4, above expectations of 55.3, but the industrial activity index fell to its lowest level since June 2023.