No Rate Hike, But Multiyear Highs in Treasury Yields and Swap Rates

Rates soar after FOMC pause. Swap rates and Treasury yields jolted higher after the Fed announced hawkish projections for 2024 and beyond. Though the rate pause was effectively locked in by futures markets prior to the announcement, the hawkish dot plot and press release immediately sent the 2y UST yield 10bps higher, while the 10-year yield closed ~9bps higher from its intraday lows. The 2y and 10y UST yields closed at 5.18% and 4.41%, respectively, both multiyear highs.

Dot plot shows incremental 25bp hike in 2023, only 50bps of cuts in 2024. The Fed’s outlook for the remainder of 2023 was more hawkish than expected- the dot plot showed 12 of 19 officials favored another 25bp hike in 2023. Beyond 2023, the Fed is now projecting only 50bps of rate cuts vs. 100bps in the prior dot plot. The updated FOMC statement cited “solid” pace of economic expansion, “strong” job gains, a “low” unemployment rate, and “elevated” inflation. The full FOMC statement side-by-side can be seen here. 

Chair Powell focuses on soft landing narrative. At today’s post-FOMC presser, Chair Powell said, “A soft landing is our primary objective…” Interestingly, he noted that he would not call a soft landing a baseline outcome, calling it plausible but uncertain and saying, “Ultimately, this may be decided by factors that are outside our control… But I do think it’s possible.” Powell offered a balanced tone at his conference, saying that the FOMC has to be cautious as it approaches peak rates since the risks of overtightening vs. under tightening have become “more two-sided.”