Powell's "no rush to cut interest rates" stance triggers rise in US bond yields, market reassesses Federal Reserve policy path.

Notice that the US Treasury yield rose on Thursday after Federal Reserve Chair Powell said he would not rush to lower borrowing costs, leading traders to reduce their bets on a Fed rate cut. The yield on the two-year US Treasury bond, which is sensitive to policy changes, climbed 4 basis points to 3.82%, narrowing the yield spread with the 10-year Treasury bond to 48 basis points, near the lowest level in a month. Powell stated on Wednesday that the Fed needs clearer direction on trade policy before taking action. After the Fed decision was announced, Treasury yields initially rose as investors focused on the potential risk of stagflation due to trade-related uncertainties mentioned by policymakers. However, on Thursday, market attention shifted to Powell's message that the Fed will wait and see how the situation develops. Evelyne Gomez-Liechti, a strategist at Mizuho, said, "We still believe that the Fed will hold steady for a while, at least until the impact of tariffs on the US economy becomes more certain," and "the market should continue to digest some rate cut expectations." Fed officials unanimously voted to keep the federal funds rate in the range of 4.25% to 4.5%, a level that has been maintained since December last year. Swap contract pricing indicates a 20% chance of a 25 basis point rate cut at the Fed's June meeting, down from around 30% on Tuesday and over 50% a week ago. The market continues to bet on three rate cuts this year, which would bring rates to the range of 3.5% to 3.75%. Policymakers stated in a release that they see increasing risks of rising inflation and unemployment. President Trump's trade policy has brought about a wave of uncertainty in the economy. While tariffs are still being negotiated, economists widely expect that expanding tariffs will increase inflation and drag down economic growth. Trump criticized the Fed's policy stance again on Thursday, saying there is almost no inflation in the US and Powell is "clueless." The president has been calling for rate cuts to boost the economy, even hinting that he may replace the Fed chair before his term ends. Dan Ivascyn, Chief Investment Officer at PIMCO, stated in an interview that the possibility of a US economic recession is the highest in years. The company has slightly increased its holdings of US Treasury bonds over the past two months, focusing mainly on short-term bonds. "Given the uncertain outlook due to tariffs, we expect the Fed to remain cautious and seek greater economic and policy certainty before making any significant policy moves," said Mark Heifler, Chief Investment Officer at UBS Global Wealth Management. He predicts the Fed will start cutting rates by 100 basis points starting in September.