Fed Hits Pause, but Yields Rise as Markets Rethink Rate Cuts

​The Fed stayed on hold, but the bond market didn’t sit still.

Treasury yields rose Thursday after Federal Reserve Chair Jerome Powell sent a clear message: don’t expect rate cuts anytime soon. While traders still hope for easing later this year, Powell made it clear he won’t be rushed—especially with tariff uncertainty clouding the economic outlook.

What Happened?
​-The two-year Treasury yield jumped to 3.82%, tightening its spread with the 10-year to just 48 basis points.
-Powell reiterated the Fed’s “wait-and-see” stance, saying more clarity on trade and inflation is needed before acting.
-Fed officials unanimously held the benchmark rate steady at 4.25%–4.5%, where it’s been since December.

Markets initially cheered the Fed’s caution, but as Powell’s tone settled in, expectations for a June cut dropped. Swaps now price just a 20% chance of a cut next month, down from over 50% a week ago.

Why the Fed Is Cautious
The Fed is staring down a dual threat: inflation risk from Trump’s new tariffs and slowing growth from trade disruptions. Policymakers fear jumping the gun could backfire if price pressures persist.

Strategists like Mizuho’s Evelyne Gomez-Liechti say the central bank is in no hurry: “We still think the Fed stays on hold until it sees how tariffs play out.”

The Big Picture
Markets still expect three cuts in 2025, but the timing is now murkier. UBS’s Mark Haefele thinks the real action starts in September, with the Fed waiting for more data before making any bold moves.

Bottom Line
​The Fed's not slamming the brakes, but it’s definitely easing off the gas. Until Washington’s trade policy settles, the central bank is content to watch—and yields are adjusting to that reality.