Treasuries Extend Declines After Powell Reinforces Fed’s Careful Stance

U.S. Treasury yields held steady on Thursday, following the sharp selloff a day earlier after Federal Reserve Chair Jerome Powell signaled uncertainty about the prospect of another interest rate cut in December.

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The benchmark 10-year Treasury yield hovered near 4.08%, little changed after jumping 10 basis points on Wednesday. The move came after the Fed delivered its widely anticipated quarter-point rate cut but stopped short of committing to a third consecutive reduction this year.

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Powell’s remarks served as a wake-up call for traders who had been betting that the central bank would ramp up its pace of easing after holding rates steady for much of 2025. Instead, the Fed chair emphasized that further action would depend on how inflation and employment trends evolve in the coming months.

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“Powell reiterated the ongoing tension between inflation that remains above target and a labor market that’s cooling but far from collapsing,” said Nicholas Mastroianni, portfolio manager at Western Asset Management Company LLC. He added that the Fed chief’s “hawkish tone” during the press conference “caught markets off guard.”

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Investors quickly recalibrated their expectations for additional policy easing. Money markets are now pricing in just 15 basis points of further cuts by the end of the year roughly a 60% probability of another quarter-point move. That’s a notable pullback from the roughly 90% odds traders had anticipated before Powell spoke.

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The Fed’s cautious tone reflects the tricky balancing act policymakers face as they try to bring inflation down without derailing economic growth. While price pressures have eased from last year’s peaks, progress has slowed in recent months, keeping the central bank wary of cutting rates too aggressively.

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Meanwhile, the labor market remains resilient, even as hiring has cooled and wage growth has moderated. That combination steady employment with stubborn inflation has left the Fed navigating a narrow path between ensuring stability and avoiding renewed price pressures.

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Market analysts say Powell’s remarks signal a pivot toward patience rather than an outright pause in the Fed’s easing cycle. “The message was clear: they’re not closing the door on another cut, but they want to see more evidence that inflation is sustainably moving lower,” said Mastroianni.

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The muted reaction in Treasuries on Thursday suggests traders are taking a wait-and-see approach. Yields had surged the previous day on Powell’s hawkish comments, but with no fresh data releases and the Fed’s next meeting weeks away, investors appeared content to hold their positions.

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In the short term, attention will likely shift to upcoming economic indicators including inflation prints and labor market data that could either reinforce or challenge the Fed’s cautious stance. Any signs of persistent inflation could push yields higher, while softer data might revive bets on a December rate cut.

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Despite the day’s relative calm, the broader message from the Fed remains clear: rate cuts are not on autopilot. The central bank wants to maintain flexibility, adjusting policy only when the data justify it.

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For now, traders and investors are recalibrating their expectations after weeks of optimism about aggressive easing. The market’s focus is squarely on whether inflation continues its gradual decline and how long the Fed can maintain its delicate balance between supporting growth and keeping price pressures in check.

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With the 10-year yield holding around 4.08%, the Treasury market appears to have found temporary equilibrium. But as always with the Fed, the next few data points could quickly tip the scales again.

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