Powell's "no rush to cut interest rates" stance triggers rise in U.S. Treasury yields as the market reassesses the Federal Reserve's policy path

The Zhitong Finance APP noted that U.S. Treasury yields rose on Thursday after Federal Reserve Chairman Jerome Powell indicated that there would be no rush to lower borrowing costs, leading traders to reduce bets on Fed rate cuts.

The policy-sensitive two-year U.S. Treasury yield climbed 4 basis points to 3.82%, narrowing the yield spread with the 10-year Treasury to 48 basis points, close to the smallest level in a month. Powell stated on Wednesday that the Fed needs to have a clearer direction on trade policy before taking action.

After the Fed's decision was announced, U.S. Treasury yields initially rose as investors focused on the risks of stagflation due to trade-related uncertainties mentioned by policymakers. However, on Thursday, market attention shifted to Powell's message that the Fed would wait and see how things develop.

Mizuho strategist Evelyne Gomez-Liechti stated, "We still believe the Fed will remain on hold for a while, at least until the impact of tariffs and their effects on the U.S. economy become more certain," adding, "The market should continue to digest some rate cut expectations."

Federal Reserve officials unanimously voted to keep the benchmark federal funds rate in the range of 4.25% to 4.5%, where it has remained since December of last year.

Swap contract pricing shows a 20% chance of a 25 basis point rate cut at the Fed's next meeting in June, down from about 30% on Tuesday and over 50% a week ago. The market continues to bet on three rate cuts this year, which would bring rates down to the range of 3.5% to 3.75%.

Policymakers stated in a statement that they believe the risks of rising inflation and rising unemployment are both increasing.

President Trump's trade policies have brought a wave of uncertainty to the entire economy. Although tariffs are still under negotiation, economists generally expect that expanding tariffs will push up inflation and weigh on economic growth.

Trump again criticized the Fed's policy stance on Thursday, claiming that there is almost no inflation in the U.S. and that Powell is "clueless." The president has consistently called for the Fed to cut rates to boost the economy, even suggesting that he might replace the Fed chairman before the end of his term.

Dan Ivascyn, Chief Investment Officer of Pacific Investment Management Company, stated in an interview that the likelihood of a U.S. recession is the highest it has been in years. The company has slightly increased its holdings in U.S. Treasuries over the past two months, primarily focusing on short-term bonds.

"Due to tariff uncertainties clouding the outlook, we expect the Fed to maintain a wait-and-see attitude, seeking greater economic and policy certainty before making any significant policy moves," said Mark Haefele, Chief Investment Officer of UBS Global Wealth Management. He expects the Fed to start cutting rates by 100 basis points beginning in September