Bond Market Update

Turning less dovish

• The Federal Open Market Committee (FOMC) voted to lower the target range for the fed funds rate by 25 basis points to 4.25-4.50%. It was not a unanimous vote. Cleveland Fed President Hammack dissented in favor of leaving the target range for the fed funds rate unchanged at 4.50-4.75%.
• The Summary of Economic Projections, released at the same time as the policy directive that said the "...Committee is attentive to the risks to both sides of its dual mandate," showed an upward revision in the median estimate for the change in 2024 real GDP (to 2.5% from 2.0%) and 2025 real GDP (to 2.1% from 2.0%), the 2024 PCE inflation rate (to 2.4% from 2.3%) and 2025 PCE inflation rate (to 2.5% from 2.1%), the 2024 core PCE inflation rate (to 2.8% from 2.6%) and 2025 core PCE inflation rate (to 2.5% from 2.2%), and a downward revision to the 2024 unemployment rate (to 4.2% from 4.4%) and 2025 unemployment rate (to 4.3% from 4.4%).
• Notably, the median estimate for the federal funds rate in 2025 was raised to 3.9% from 3.4%, signaling an estimate for 50-basis points of easing in 2025 versus the prior estimate of 100 basis points. The longer run rate also got bumped up to 3.0% from 2.9%.
• The knee-jerk reaction to the Fed news included a sell-off in stocks and bonds, as the balance of today's information reflected a less dovish-minded Fed.
• The U.S. Dollar Index is up 0.7% to 107.69.
• Yield check:
  • 2-yr: +7 bps to 4.31%
  • 3-yr: +7 bps to 4.29%
  • 5-yr: +7 bps to 4.32%
  • 10-yr: +6 bps to 4.44%
  • 30-yr: +4 bps to 4.62%