Recent surges in the bond market, pushing the 10-year Treasury yield above 4.80%, have created unease in the U.S. stock market, leading to declines in indexes. Despite the Federal Reserve's three interest rate cuts since September, the bond market anticipates potential inflation and a resilient U.S. economy that may not require further rate reductions, negatively impacting stock prices.
Swings in the bond market recently sent the yield on the 10-year Treasury above 4.80% and its highest level since 2023. That’s injected nervousness into the U.S. stock market and knocked indexes off their records.
But the Fed’s influence is limited when it comes to the interest rates that are currently knocking the stock market around, chiefly the 10-year Treasury yield. The Fed controls the federal funds rate, which is a very short-term interest rate that dictates what banks charge each other for borrowing money overnight.
The 10-year yield rose, even as the Fed was cutting overnight interest rates, because expectations for both economic growth and for inflation were rising. Much of that is due to a string of reports showing the U.S. economy remains much more solid than expected. Inflation was also more stubborn to ease, though this past week’s reading offered more optimism and helped Treasury yields give back some of their big gains.
BOND MARKET STOCK MARKET FEDERAL RESERVE INFLATION INTEREST RATES
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