The Fed hikes to 4% as the 10-year yield toys with 5%
The Fed has raised its rate to 3.75-4.00%, its first increase since 2023 and its first move since the cut in December 2025. The rate it controls is the overnight one. Everything further out is set by people buying and selling bonds, and they have been selling.
On Wednesday, the Federal Reserve raised its key interest rate to a range of 3.75-4.00%, marking its first increase since 2023. The decision came despite the 10-year yield hovering around the 5% mark, its highest level since 2007. The Federal Open Market Committee (FOMC) decided unanimously, casting a vote of 12-0. The balance sheet remained unchanged following the rate hike, with bank reserves deemed sufficient.
The bond market had anticipated the move, nudging long rates upward in recent weeks. The yield on the 10-year bond fell to just under 4.94% upon the announcement, before reversing to near 4.97% within the same five-minute interval. The rate, which sets the overnight borrowing cost, is not directly controlled by the Fed but is influenced by market participants buying and selling bonds.
The overnight rate is the Fed's primary tool to steer the economy towards its dual mandate of price stability and full employment.
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