Why Are Interest Rates Rising Despite Fed Cuts to Rates

New York: So, what’s going on with interest rates? It seems a bit upside down, right? The bond market has been all over the place lately, pushing the yield on the 10-year Treasury above 4.80%. That’s the highest it’s been since 2023, and it’s making folks on Wall Street pretty jittery.

You’d think with the Federal Reserve cutting interest rates three times since September, things would be calming down. But nope! The bond market is more focused on what might happen in the future rather than what’s happening now. Investors are worried about inflation creeping back and whether the economy really needs those lower rates.

The Fed has dropped its main interest rate by a full percentage point since September, trying to give the economy a bit of breathing room after raising rates to a two-decade high. But here’s the kicker: the Fed’s control is pretty limited when it comes to the 10-year Treasury yield. That yield is influenced by investors who are looking at the bigger picture, like economic growth and inflation trends.

Interestingly, the 10-year yield started climbing in September, right when the Fed began cutting rates for the first time since 2020. It seems like investors are expecting both growth and inflation to rise, especially since recent reports show the U.S. economy is holding up better than many thought.

Back in late 2018, we saw something similar but in reverse. The Fed was raising rates, and the 10-year yield was climbing too. But then it started to drop, even after the Fed hiked rates again, as investors figured the rate increases would stop before they hurt the economy too much.

Now, with President-elect Donald Trump in the picture, there’s more uncertainty. His plans for tariffs could push inflation up, and his tax cuts might inflate the U.S. debt, making investors demand higher interest rates for the added risk.

The Fed has also hinted that it might only cut rates twice in 2025, down from earlier projections of four cuts. Wall Street traders are starting to wonder if there will be any cuts at all in 2025. Even a recent positive inflation report didn’t ease the market’s worries. Experts believe it might take several months of slowing inflation before the Fed and the market consider another rate cut.