Dovish Fed Fuels Treasury Rally

Rates fall dramatically following Fed rate hike, press conference. Swap rates and Treasury yields plummeted after the Fed announced a 25bp hike and followed with a press conference in which Chair Powell struck a balanced tone. The 2-year yield fell ~22bps to 3.95%, while futures now suggest a ~46% chance of a 25bp hike at May’s FOMC meeting. The 10-year yield also fell significantly, now sitting at 3.43% after an 18bp decline. Elsewhere, equities sold off in the session, with the DOW, S&P 500, and NASDAQ all falling ~1.60%. 

FOMC hikes rates 25bps, voices confidence in U.S. banking system. The Fed hiked rates by 25 bps today and signaled future hikes despite recent bank failures. Chair Powell said, “We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so,” further noting that officials are ready to raise rates higher if needed. Commenting on the banking sector, he emphasized the soundness and resilience of the banking system but mentioned that banking sector issues are “likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes.” Also closely watched were the Fed’s updated economic projections. The median policy rate estimate for YE23 was unchanged at 5.1%, while the median for YE24 rose from 4.1% to 4.3%.

Day ahead. Initial jobless claims, new home sales, and Chicago Fed National Activity figures will highlight the session.