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Last week, the Fed resumed its rate-cutting cycle with a 25bp reduction, its first move this year, citing a shift in the balance of risks amid weaker labor market data. It signaled more cuts ahead, with the median year-end rate projection falling after three steady meetings.

Powell described today’s move as “a risk-management cut,” with rising downside risks to the employment mandate making it appropriate to resume “moving in the direction of neutral.”

Three developments shaped the Treasury market over the past month: a weak jobs report, a dovish tone from Powell at Jackson Hole, and renewed political pressure stemming from Trump’s push to replace Governor Lisa Cook from the Fed’s Board.

A rate cut in September remains a possibility if the labor market proves to be "on the edge" and weakens sharply, but that seems unlikely at this point. For now, "we have a long way to go to really understand exactly how [the tariff-related inflationary effect] will be."

The fiscal bill approval, set to push debt higher over the next decade, had puzzlingly only a muted impact on term premia and the U.S. dollar. Treasury yields also showed little movement despite renewed tariff threats, suggesting a belief the government will not follow through on those threats.

Mid- and long-term Treasury yields have pulled back from last month’s highs amid soft inflation prints and dovish signals from Fed officials like Bowman and Waller, who have voiced support for a July rate cut.

While signals on how the Fed now assesses the evolution of risks to its goals will draw significant attention, all eyes will be on the dot plot to see whether a majority still favors at least one rate cut this year.

A notable development in recent weeks has been the rise in the 30-year Treasury yield, likely driven by growing concerns over U.S. fiscal sustainability and reduced global appetite for U.S. Treasuries as bond investors want to be rewarded for higher risks.