Key facts
- The US Treasury yield curve steepened significantly after the Federal Reserve held interest rates steady.
- The 30-year US Treasury bond yield rose to a 19-year high of nearly 5.24%.
- St. Louis Fed President Alberto Musalem indicated a preference for a rate hike and stressed the need for the Fed to bolster its inflation-fighting credibility.
- Three FOMC members dissented, favoring an immediate rate increase due to inflation concerns.
- Market participants are pricing in a high probability of a rate hike in September.
The US Treasury yield curve steepened significantly after the Federal Reserve voted to hold its key interest rate steady, fueling concerns that the central bank may not be acting aggressively enough to curb rising inflation. The yield on the 30-year US Treasury bond surged to nearly 5.24%, its highest level since 2007, after the Fed announced its decision to maintain rates.
St. Louis Fed President Alberto Musalem told the Financial Times that the Fed needs to earn its inflation-fighting credibility through interest rate increases, stating he had expressed a preference for a quarter-percentage-point hike at the recent policy meeting. Three FOMC members also dissented, concerned that inflation will remain stuck above the Fed's 2% target.
Traders are now betting on a 67% chance of a 25-basis-point rate hike in September, according to CME Group's FedWatch tool. The market's reaction suggests skepticism about the Fed's resolve in tackling rising prices.