On September 17, the benchmark 10-year Treasury yield ended the trading session at 4.47%, or nearly 80 basis points below the target Fed funds rate, which was 5.25% at the time. The yield curve, in short, was inverted and by more than a little. The next day, the Fed cut rates by 50 basis points, which was followed by another 25 basis point cut at the end of October.
Today, the Fed funds rate is 4.50% and the yield on the 10-year Treasury yield is 4.36%, as per last night’s close. The yield curve is still inverted, albeit by a smaller margin compared with September 17.
Meanwhile, the market for Fed funds futures seems to be inclined to think that another rate cut is coming. Perhaps, although the easy cutting is now behind us.
Lower interest rates invariably come as a package deal, with positive and negative effects. Enhanced liquidity has the power to boost spending, at least in the short term. But lower rates come at a cost elsewhere. Those costs have been minimized and largely overlooked in past years. But that was a function of the moment.