The market response to the Fed’s first rate cut was atypical, with 10-year Treasury yields rising from 3.66% to 4.42% (+76 bp) instead of falling. This reflects investors’ cautious view of monetary policy and inflation, indicating that while inflation appears to be under control in the near term, persistent inflationary forces remain a challenge, making a return to looser monetary policies more difficult.

Typically, interest rate cuts reduce long-term bond yields as investors expect a weaker economy and controlled inflation. However, this time, yields rose, reflecting expectations of more persistent inflation, a resilient economy and the perception that the Fed will not quickly return to easy monetary policies. This indicates less market confidence that rate cuts will alleviate economic and inflationary pressures in the near term.