Treasuries Rise Ahead of the Federal Reserve's Rate Path Update

U.S. Treasury yields edged lower at the start of the week as investors looked ahead to a pivotal Federal Reserve meeting widely expected to deliver a quarter-point rate cut and shed light on how quickly policy easing might follow.

‍

Yields across maturities slipped by two to three basis points, with shorter-term notes holding near their lowest levels of the year. Traders are positioning for Wednesday’s decision with the expectation that Fed officials will indicate a path toward multiple cuts.

‍

Softer labor-market data has strengthened the view that policymakers will prioritize growth risks over stubborn inflation and potential tariff-related pressures, resuming an easing cycle paused since December.

‍

Markets are currently pricing in about 70 basis points of total easing across the Fed’s three remaining 2025 meetings, which implies the likelihood of two additional cuts before year-end. The main uncertainty lies in how Fed Chair Jerome Powell frames the outlook. A more cautious tone emphasizing the need for patience on inflation and jobs could temper aggressive market bets.

‍

“Powell is likely to strike a balanced message,” noted Thierry Wizman, global FX and rates strategist at Macquarie Group. “He’ll underscore the risks tied to slowing employment growth, but he probably won’t go so far as to endorse a long sequence of cuts after September.”

‍

Alongside the policy decision, Wednesday will bring the Fed’s updated quarterly economic and interest-rate projections commonly known as the “dot plot.” These forecasts provide valuable insight into where officials see rates trending in the months ahead.

‍

Powell will also take questions in his regular post-decision press conference, where investors will parse his comments for any shift in tone. Back in June, policymakers were only narrowly supportive of two rate cuts for 2025, leaving room for debate on how quickly easing should proceed.

‍

Trading activity was muted in advance of the decision. As of 8:45 a.m. New York time, Treasury futures volumes were running at roughly 80% of their 15-day average, reflecting a wait-and-see attitude from market participants.

‍

In the meantime, investors are watching key data releases and auctions for signals on demand and inflation expectations. Tuesday’s retail sales report is the standout economic release ahead of the Fed meeting and could influence how confident officials feel about consumer strength.

‍

The Treasury will also test appetite for government debt with sales of 20-year bonds and 10-year Treasury Inflation-Protected Securities (TIPS). Strong or weak participation in these auctions could add to the bond market’s tone leading into Wednesday.

‍

For now, all eyes remain on Powell and his colleagues. A quarter-point rate cut is essentially locked in, but the details of the Fed’s forward guidance will determine whether markets keep leaning toward a more aggressive easing path or scale back expectations.

‍

With job growth showing cracks and inflation still above target, the central bank faces the delicate task of balancing risks without sending mixed signals.

‍