U.S. Treasury yields rose on Wednesday after the Federal Reserve released its policy statement and economic projections.
The yield on the benchmark 10-year Treasury note rose to 1.52% shortly after 2 p.m. ET. The yield on the 30-year Treasury bond was little changed at 2.196%. Yields move inversely to prices. The yields were down for the day before the Fed’s decision was released.
The central bank held its target interest rate steady at near zero, but it projected higher inflation ahead.
The Fed changed its headline inflation estimate to 3.4%, a full percentage point above its March projection, and the so-called dot plot showed that central bankers expect rate hikes in 2023, a year ahead of prior estimates.
The central bank reiterated in its policy statement that it expects the price increases to be “transitory.”
The Fed was not expected to take any action in this meeting but economists expected the central bank to signal that it is starting to think about tapering bond purchases. The Fed’s statement did not mention any changes to its asset purchase program.
Scott Ruesterholz, portfolio manager at Insight Investment, said on Tuesday that this was among the “most consequential Fed meetings in some time as the committee balances these aspects of the dual mandate.”
“There is a tremendous amount of uncertainty: how much of the inflation is being driven by transitory factors, like supply chain disruptions, and how much of the slower job growth is being driven by temporary measures like enhanced unemployment benefits,” Ruesterholz explained.
In light of this uncertainty, Ruesterholz said his firm expected the Fed to strike a “patient tone” in this meeting, “wanting to ensure they do not overreact and slow the pace of recovery.”
He added that Insight Investment did not expect the Fed to “rush into tapering” in this meeting. Instead, the firm expected the central bank’s annual economic symposium in Jackson Hole in August a likelier starting point for discussion of tapering, “paving the way for an official announcement potentiatlly by December of this year.”
The Commerce Department released May data for building permits, which fell 3.0% to a rate of 1.681 million units in May, and housing starts, which rose 3.6% to a seasonally adjusted annual rate of 1.572 million units.
Import prices rose 1.1% in May after gaining 0.8% in April, the Labor Department reported Wednesday. Export prices rose 2.2% in May after rising 1.1% in April.
An auction is due to be held on Wednesday for $35 billion of 119-day bills.
— CNBC’s Patti Domm, Pippa Stevens and Tanaya Macheel contributed to this market report.
