Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

WHAT HAPPENS TO YIELDS IF THERE ARE NO MORE RATE CUTS?

Federal Reserve policymakers on Wednesday slashed expectations on rate cuts in 2025 to 50 basis points, from their previous projection of 100 basis points, and higher inflation expectations also raised fears that further rate cuts may be off the table unless inflation is tamed.

If inflation remains sticky and rate cuts are less likely, that would mean that longer-dated Treasury yields need to move higher.

Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, says that if the Fed stopped cutting now and the yield curve steepened, then the 10-year yield would likely need to move “well north of 5% for a normal curve environment that balances the potential for rates and hikes in the future.”

LeBas sees this outcome as unlikely, and notes that it would also require the economy to be in a positive growth environment. “However… if short-term markets reprice to that, that's where the 10-year needs to go.”

Fed policymakers increased their core inflation expectations to 2.5% and the range of expectations increased to 2.5% to 2.7%.

“My opinion is that inflation is really unlikely to reaccelerate to that level. I suspect this is just responding to the last couple of data points rather than a genuine forward outlook. But inflation is extremely hard to forecast, T + 12 months,” LeBas said.

Money market traders on Friday were pricing in 40 basis points of cuts next year.

(Karen Brettell)

*****

FOR FRIDAY'S EARLIER LIVE MARKETS POSTS:

U.S. STOCKS ON THE RISE AFTER PCE REPORT - CLICK HERE

CYCLICALS FREEZE UP IN DECEMBER, BUT IS A THAW AROUND THE CORNER? - CLICK HERE

U.S. STOCK FUTURES PARE LOSSES AFTER PCE - CLICK HERE

FIVE CREDIT STATS - CLICK HERE

STOXX HEADS FOR BIGGEST WEEKLY DROP SINCE EARLY SEPT - CLICK HERE

EUROPE BEFORE THE BELL: TRUMP WARNS EUROPE - CLICK HERE

ONE LAST HURDLE REMAINS FOR THE YEAR - CLICK HERE