US | Treasury yields little changed as the Fed signals no immediate shift in policy

Summary

While short-term inflation expectations have increased, the Fed doesn't seem troubled for now because “most measures of longer-term expectations remain consistent with [the Fed’s] 2% inflation goal.”

Key points

• Key points:
• The 2-year yield fluctuated in a 3.9-4.1% narrow range over the past month with the expectation that the Fed will maintain a wait-and-see stance for several more months.
• The 10-year yield is close to 4.4% after yesterday’s announcement of tariffs on automobile imports, but still 40 bps below its peak reached in early January.
• The decline in real yields observed from mid-January to late February seems to have bottomed out in March despite latent downside risks to growth.
• Markets’ concerns about Trump’s protectionist policies have led to expectations that the Fed will resume monetary easing in 2H25.
• The median FOMC projection in the updated SEP continues to be for the fed funds rate to fall to 3.9% by the end of this year and to 3.4% by year-end 2026.

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