U.S. Treasury yields slipped on Wednesday after the Federal Reserve’s policy statement and interest-rate projections indicated the central bank would keep rates at current levels next year.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -1.89% fell 2.4 basis points to 1.807%, while the 2-year note rate TMUBMUSD02Y, -1.46% edged 1.8 basis points lower to 1.634%, after touching a monthlong high on Tuesday. The 30-year bond yield TMUBMUSD30Y, -1.50% shed 2.4 basis points to 2.228%.
What’s driving Treasurys?
As expected, the Fed stood pat at its policy update, leaving its benchmark interest rate at a range between 1.5% to 1.75%. This concludes a busy year for the central bank which has lowered interest rates three times this year and begun to expand its balance sheet through repo auctions and U.S. Treasury bill purchases.
The Fed’s so-called dot plot showed the median forecast was for no rate hikes in 2020, with four members of the Federal Open Market Committee indicated they anticipated a hike next year. The Fed also indicated expectations for real gross domestic product growth to stay near 2% over the next three years.
At the post meeting press conference, Fed chair Jerome Powell said the central bank was now focusing on avoiding stress in short term money markets at year end by using both the repo market and purchases of short term U.S. Treasuries.
See: Fed upgrades economic outlook and signals it is on hold for now
On international trade policy, White House advisers Larry Kudlow and Peter Navarro have both indicated that tariffs scheduled to hit Chinese goods on Dec. 15 are “still on the table,” following a report from the Wall Street Journal that said both parties were bracing for a delay of a tariff increases on China goods on Sunday, which would be read as an escalation of tensions.
In economic data, the U.S. consumer price index for November increased by 0.3%. Economists surveyed by MarketWatch expect the index rose 0.2% in November from the previous month.
What did market participants’ say?
“The statement provided little groundbreaking news on the path of monetary policy. The prevailing message out of today’s meeting is that the Fed remains on hold, barring any material upside surprises for inflation,” wrote Jason Pride, chief investment officer of private wealth at Glenmede.