The yield on the 10-year US Treasury note eased to 4.95% on Wednesday from a 19-year high of 5.01% in the previous session, following the Federal Reserve’s widely anticipated 25 bps interest rate increase. Markets had largely priced in the move after persistently high inflation, together with a strong labor market and firm retail sales, reinforced Chairman Warsh’s Jackson Hole message that borrowing costs would continue to rise to contain price pressures.
Median projections from FOMC members indicated a split outlook of one or two additional rate hikes by next year, in line with upward revisions to inflation forecasts and lower projections for unemployment. Yields on the longer end of the curve eased more than those at the front end as investors focused on the Fed’s determination to counter higher prices. Even so, the 10-year yield remains about 80 bps higher since the start of the year. Surging energy prices have intensified pressures stemming from heavy corporate debt issuance and widening fiscal deficits.