Markets Look Past Fed’s First Rate Hike; U.S. Treasury Yields Edge Lower

【Financial News New York = Correspondent Lee Byung-chul】 The Federal Reserve System (Fed) raised its benchmark interest rate for the first time in three years, but U.S. Treasury yields fell instead. The 25-basis-point hike had already been priced into the market, while expectations grew that the Fed would not pursue a series of aggressive increases.
On the 16th local time, the 10-year U.S. Treasury yield fell more than 3 basis points (1 basis point = 0.01 percentage point) after the Fed’s rate decision, reaching 4.957%. The 30-year yield declined more than 4 basis points to 5.322%, while the policy-sensitive 2-year yield also fell more than 4 basis points to 4.619%.
At its Federal Open Market Committee (FOMC) meeting that day, the Fed raised the benchmark rate by 0.25 percentage point, from 3.50–3.75% to 3.75–4.00%. It was the first rate hike in three years. The Fed stated, "Inflation remains elevated," adding, "This policy action will help inflation return more quickly to the 2% target."
Inflation concerns resurfaced as international oil prices surged amid escalating hostilities between the United States and Iran. Rising energy prices also began to show up in the August consumer price index (CPI). As a result, the 10-year Treasury yield soared the previous day to its highest level since 2007.
However, bond markets stabilized after the Fed signaled gradual additional rate increases rather than aggressive tightening. According to the Summary of Economic Projections (SEP), most FOMC members expected two rate hikes in total this year.


[email protected] Correspondent Lee Byung-chul Reporter