investors digest Fed rate decision

U.S. Treasury yields climbed on Thursday, with the 10-year and 2-year yields reaching levels last seen over a decade ago, as investors digested the Federal Reserve’s interest rate decision and forward guidance.

At 3:40 a.m. ET, the yield on the 10-year Treasury was up by around seven basis points to 4.4172% as it extended its 16-year high. It started trading at levels last seen in 2007 earlier this week. The 2-year Treasury was more than three basis points higher to 5.1588%, hovering around levels last reached in 2006.

Yields and prices have an inverted relationship and one basis point equals 0.01%.

The Fed announced its decision to keep rates unchanged as its September meeting concluded on Wednesday, in keeping with investor expectations.

However, policymakers also suggested that they are expecting one more rate hike to come this year and rates to stay higher for longer, with just two rate cuts forecast for 2024. In June, the Fed said it was anticipating four rate cuts next year.

In a press conference after the announcement, Fed Chair Jerome Powell said the central bank was in a position where it could “proceed carefully” with its monetary policy. Policymakers would, however, like to see more progress in the fight against inflation, even though pressures have somewhat eased, Powell indicated.

The Fed also released its projections for several key economic indicators on Wednesday, saying it expects the gross domestic product to increase by 2.1% this year, which is far higher than previous forecast.

Meanwhile, the core personal consumption expenditures price index, which is used to track the inflation rate, is now expected to come in at 3.7%, lower than predicted in June.

On Thursday, existing home sales data for August and weekly initial jobless claims are expected. Elsewhere, the Bank of England is due to announce its latest interest rate decision after inflation came in below expectations earlier on Wednesday.