Fed Cuts Rates to 4%-4.25%, Treasury Yields Ease and Mortgage Rates Dip

Lead The Federal Reserve lowered its benchmark federal funds rate by 25 basis points to a 4.00%-4.25% range on Wednesday, while U.S. 10-year Treasury yields and mortgage rates edged lower on Thursday amid mixed economic signals and hopes for further easing.

Nut Graf Wednesday’s quarter-point cut marks the Fed’s first rate reduction since December 2024 and signals two more cuts before year-end, aiming to bolster a cooling labor market and tame lingering inflation pressures. Markets responded with modest declines in long-term yields and consumer borrowing rates.

Federal Reserve’s Decision and Rationale

  • The FOMC cited signs of slowing job growth and elevated inflation risks, judging that downside risks to employment have risen and warrant preemptive easing.
  • Voting was 11-1 in favor of the quarter-point cut; Governor Stephen Miran dissented, preferring a larger 50-basis-point reduction.
  • The Fed will continue reducing its balance sheet holdings of Treasuries and mortgage-backed securities as part of its normalization strategy.

Treasury Yields Retreat

  • The yield on the 10-year U.S. Treasury note fell 3 basis points to 4.05% on Thursday after the Fed announcement, down from 4.08% a week earlier.
  • The 2-year Treasury yield declined 2 basis points to 3.52%, reflecting diminished expectations for aggressive tightening.
  • Declining yields underscore investor demand for safe-haven assets amid uncertainty over the speed and scale of future rate cuts.

Mortgage Rates Follow Suit

  • The average 30-year fixed-rate mortgage dipped four basis points to 6.14% APR early Thursday, while the 15-year fixed rate rose to 5.60% APR.
  • A 5-year adjustable-rate mortgage fell one basis point to 7.17% APR, as long-term Treasury yields drove mortgage pricing.
  • Mortgage rates remain roughly 46 basis points above year-ago levels, limiting relief for prospective homebuyers despite the Fed’s move.

Market Outlook

  • Fed Chair Jerome Powell emphasized that future adjustments will depend on incoming data on labor markets, inflation pressures and financial conditions.
  • Traders price in two more quarter-point cuts by year-end, with probabilities skewed toward a December reduction.
  • Investors await next week’s jobs report and September inflation readings to gauge the pace of policy easing.