Goldman Sachs: The hawkish stance of the Fed will exacerbate volatility in the short end of the US debt market.

Kay Haigh of Goldman Sachs Asset Management said that the "clearly hawkish" message from Powell took the market by surprise, as he explicitly prioritized containing inflation in the short term. Traders quickly increased their bets, believing that policymakers will raise rates earlier than previously expected. Data shows that the market now sees over an 80% probability of a rate hike at the Fed's September meeting, and expectations have already priced in more than one hike in October. Just on Tuesday, the market still believed that the earliest hike would not happen until December. Haigh said, "Volatility in 2-year government bond varieties will significantly increase in the future. This is because the market is refocusing on inflation issues, which will stabilize and flatten the long end of the yield curve. Secondly, comments from the Fed about forward guidance indicate a reduction in such guidance in the future, relying more on data, and these changes will largely volatility in the 2-year period." The 2-year Treasury yield, reflecting market expectations of Fed policy, surged after the Fed decision and experienced volatility on Thursday. The yield soared by 13 basis points on Wednesday, marking the largest increase since April 2025 and matching the largest single-day increase on a Fed interest rate decision day since 2008. On Thursday, the 30-year Treasury yield touched a two-month low.