Powell Hawkish! Two-year US Treasury yield rises, traders cut bets on December rate cut.

Following hawkish comments by Federal Reserve Chairman Powell, the policy-sensitive US Treasury yields rose. Data shows that the two-year US Treasury yield rose by 8 basis points to 4.36%. At the same time, traders reduced their expectations for a rate cut in December, with the probability of a rate cut at the December Fed meeting falling to less than 60% as reflected in swap trading, down from about 80% just a day before. Zachary Griffiths, Director of US Investment Grade and Macro Strategy at CreditSights, said, "The market's reflection of the Fed's policy path is twofold. Powell's comments are more hawkish, as he has taken a risk management approach to future policy." In his speech on Thursday, Powell stated that there was no urgency for policymakers to cut rates given the state of the US economy, although he did not comment on the possibility of a rate cut at the December meeting. Powell said, "If the data allow us to slow down, then slowing down seems like a prudent course." In recent days, traders have been adjusting their bets on a December rate cut by the Fed. After the release of US October CPI data on Wednesday met expectations, traders increased their expectations for a rate cut next month. However, while the market still leans towards expecting a rate cut next month, the outlook for rate cuts in 2025 has become dimmer. Following Trump's victory in the presidential election last week and a 25 basis point rate cut by the Fed, Wall Street economists have also lowered their predictions for next year's rate path. Michael Feroli, chief US economist at JPMorgan, said Powell's speech may indicate that the Fed will slow down the pace of rate cuts before March next year. He said, "We still think the Fed may cut rates in December. But today's speech has opened a door, suggesting that the Fed could slow down its easing as early as January next year." Gennadiy Goldberg, Rate Strategy Director at TD Securities, said, "Powell's comments have opened the door for a slower pace of rate cuts, which could keep rates elevated for a longer period than investors expect."