Powell's “no hurry to cut interest rates” stance triggers rise in US bond yields, and the market re-evaluates the Federal Reserve's policy path

The Zhitong Finance App noticed that US bond yields rose on Thursday. Earlier, Federal Reserve Chairman Powell said he would not rush to reduce borrowing costs, and traders cut their bets on the Fed cutting interest rates as a result.

The yield on policy-sensitive two-year US bonds climbed 4 basis points to 3.82%, and the yield gap with 10-year US bonds narrowed to 48 basis points, close to its lowest level in a month. Powell said on Wednesday that the Federal Reserve needs to be more clear about the direction of trade policy before taking action.

After the announcement of the Federal Reserve's decision, US debt initially rose because investors were concerned about the risk that trade-related uncertainties mentioned by policymakers might lead to stagnation. But on Thursday, market attention turned to Powell's message that the Federal Reserve will wait and see how things unfold.

Mizuho strategist Evelyne Gomez-Liechtenstein said, “We still believe that the Federal Reserve will stay on hold for a while, at least until tariffs and their impact on the US economy are more certain.” “The market should continue to digest some expectations of interest rate cuts.”

Federal Reserve officials voted unanimously to maintain the benchmark federal funds rate in the 4.25% to 4.5% range, which has remained at this level since December last year.

Swap contract pricing shows that the probability that the Federal Reserve will cut interest rates by 25 basis points at the next meeting in June is 20%, compared to about 30% on Tuesday, over 50% a week ago. The market continues to bet that interest rates will be cut three times this year, which will reduce interest rates to the 3.5% to 3.75% range.

Policymakers said in a statement that they believe the risk of rising inflation and rising unemployment is increasing.

US President Trump's trade policy has brought a wave of uncertainty to the entire economy. Although tariffs are still being negotiated, economists generally expect that expanding tariffs will drive up inflation and slow down economic growth.

Trump once again criticized the Federal Reserve's policy stance on Thursday, saying that there is almost no inflation in the US and that Powell “has no clue.” The president has been calling for the Federal Reserve to cut interest rates to boost the economy, and has even hinted that he may replace the chairman of the Federal Reserve before the end of his term.

Dan Evasin, chief investment officer of Pacific Investment Management, said in an interview that the possibility of a recession in the US economy is the highest in a few years. The company has slightly increased its holdings of US debt over the past two months, mainly in short-term bonds.

“As tariff uncertainty makes the outlook uncertain, we expect the Federal Reserve to remain wait-and-see and seek greater economic and policy certainty before making any major policy moves,” said Mark Heifler, chief investment officer at UBS Global Wealth Management. He expects the Federal Reserve to cut interest rates by 100 basis points starting in September.