FX.co ★ US 10-Year Yield Drops After Powell Keynote Speech

The yield on the 10-year US Treasury note declined to 4.28% on Friday, approximately 10 basis points below its session highs, following Federal Reserve Chairman Powell's indication of a likely interest rate cut in the upcoming meeting. Powell noted that the risk balance between inflationary pressures and a declining labor market has shifted sufficiently to justify a change in monetary policy. This paves the way for a potential 25 basis points rate cut in September and has prompted markets to increase expectations of further easing in policy during the fourth quarter. Rate futures currently reflect a consensus for two total cuts this year, with 40% of the market anticipating three cuts. Nonetheless, the steeper yield curve suggests a partial acknowledgment of inflation and a divergence between short-term and long-term interest rates, exacerbated by strong Producer Price Index data and rising prices as indicated by ISM and S&P Purchasing Managers’ Indexes.