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The Federal Reserve started cutting interest rates three months ago, but instead of calming markets, it lit a fire under them.
Since the Fed’s first rate cut of this cycle in September 2024, the benchmark Treasury 10‑year yield is up by 0.5 percentage points, now sitting at 4.1%, while the 30‑year has jumped over 0.8 percentage points, per data from TradingView.
Usually, when the Fed cuts, long-term yields drop too. Even during the two non-recessionary easing cycles in 1995 and 1998, when rates were cut by just 75 basis points, the 10‑year didn’t spike like this.
Fed faces political pressure as Trump prepares to choose new chair
Donald Trump hasn’t been shy about calling for faster cuts, insisting they’ll push down yields and lower rates on mortgages, credit cards, and more. But so far, that theory isn’t landing.
On top of that, Trump is about to get the chance to replace Jerome Powell with his own pick, which has markets on edge. If the Fed caves to political pressure and rushes into more cuts, it could lose credibility, stir up more inflation, and push yields even higher.
The Fed has already reduced its benchmark rate by 1.5 percentage points, bringing it to a range of 3.75% to 4%. Another 0.25% cut is expected this week, with traders also pricing in two more in 2026, bringing the rate closer to 3%.
But despite the cuts, borrowing costs for consumers and businesses haven’t eased. Treasury yields, which act as the backbone of most loan rates, are moving in the opposite direction.
Jay Barry, who leads global rates strategy at JPMorgan, thinks this disconnect has two roots. First, markets saw the Fed pivot coming months ago.
Yields hit their high point in late 2023, long before the actual cuts began, so the effect of easing is already “priced in.” Second, he says the Fed is cutting into a still-hot economy.
Inflation hasn’t dropped enough, so rate cuts aren’t leading to lower yields, because there’s still no fear of a deep recession.
Fed officials divided as inflation data lags and labor market shifts
Not everyone inside the Fed agrees on what comes next. Boston Fed’s Susan Collins, Kansas City’s Jeff Schmid, and Chicago’s Austan Goolsbee have all warned against rushing into more cuts.
Goolsbee said it’s risky to “frontload” the easing while inflation remains above the 2% target. On the other hand, New York Fed’s John Williams, who is vice chair of the FOMC, hinted he could support a rate cut soon.
Inflation data itself has been slow to arrive, thanks to the October–November government shutdown. The latest PCE index reading, the Fed’s preferred gauge, came out two months late. In September, core inflation (excluding food and energy) was 2.8%, a notch lower than August’s 2.9%.
Officials think it’ll settle at 3.1% by year-end, still well above target. Jobs data hasn’t been any less confusing. After losing 4,000 jobs in August, payrolls added 119,000 positions in September. June was negative, July bounced back, August fell again, and September rebounded, a rollercoaster trend that’s made direction hard to pin down.
The Fed’s Beige Book offered newer insight for early November. It reported layoffs rising, companies freezing hiring, and cutting hours. Several firms said AI was replacing entry-level staff or helping workers do more with less, reducing the need to hire.
Chair Powell is set to hold his post-meeting press conference on Wednesday, where the Fed will also drop its quarterly projections, giving Wall Street a look at where officials expect rates to land in 2026.
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