Widely Watched Yield Curve at Most Inverted in Decades After Fed Hike

One of the Treasury markets more widely watched yield-curve indicators
extended its inversion after the Federal Reserve’s decision to lift
its benchmark rate in line with expectations.

The yield on the two-year Treasury moved to be as much as 32 basis
points higher than the 10-year yield, which slid in the wake of the
Fed’s announcement that it was raising its overnight benchmark by 75
basis points. The yield-curve measure was already at a multi-decade
low earlier in the day but hit a new extreme following the Fed’s
latest policy release. Yield curves are often seen as a potential
indicator of recessionary risk when inverted.

Policymakers facing the hottest cost pressures and 40 years lifted the
target for the federal funds rate on Wednesday to a range of 2.25% to
2.5%. That takes the cumulative June to July increased to 150 basis
points the steepest since the price fighting era of Paul Volcker in
the early 1980s. The Federal Open Market Committee statement said the
central bank is strongly committed to returning inflation to its 2%
objective.

The fed’s focus is squarely on inflation. DIANE SWONK chief economist
at KPMG sits on Bloomberg Television, they are hammering demand, she
said we are going to have a much lower GDP. The 10-year yield fell as
much as six basis points to 2.74% while the two-year rate briefly
edged higher before retreating expectations for the path of Fed rate
hikes over the coming months and potential cuts in 2023 remain broadly
unchanged.

According to swap market data. The Bloomberg Dollar Index slipped in
US stocks to maintain their gains for the day. Traders will look to
parse fed boss Jerome Powell’s upcoming press conference on the
decision for further details. They will also be alert to incoming
data, including gross domestic product figures scheduled for release
Thursday.

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