Yields Rise as Fed Minutes Reveal Rate Cut Disagreement; Gold Falls on Inflation

Fed Officials Divided on Rate Cut Size in September

Minutes from the Federal Reserve’s September meeting, released on Wednesday, revealed internal divisions over the rate cut size, with the central bank ultimately opting for a 50 basis point reduction. The decision aimed to balance the need to control inflation against concerns about labor market strength.

Disagreement Over Rate Cut Size

The minutes showed that while a substantial majority supported the 50 basis point cut, some officials favored a smaller, 25 basis point reduction. Those pushing for a more gradual approach argued that it would provide more time to assess inflation trends and the broader economic outlook. Governor Michelle Bowman cast the lone dissenting vote, preferring the smaller cut, highlighting rare division within the committee.

The decision to implement the half-point reduction was meant to better align policy with inflation progress while supporting economic growth. The Fed emphasized that this move should not be seen as a sign of a more aggressive easing path, but rather as a recalibration of policy to fit current conditions.

Treasury Yields Rise After Fed Minutes

Following the release of the minutes, U.S. Treasury yields climbed as investors reassessed future rate cut prospects. The 10-year Treasury yield rose by more than 3 basis points to 4.071%, while the 2-year yield reached 4.011%. These moves came despite a strong Treasury auction earlier in the day, signaling ongoing caution in the market.

The yield increase aligns with recent trends driven by stronger labor market data and expectations of persistent inflation pressures. The 10-year yield had already surpassed 4% earlier in the week, reaching its highest point in over two months as rate-cut expectations were recalibrated.

Gold Prices Decline on Higher Yields and Fed Uncertainty

Gold prices weakened as Treasury yields rose, reflecting reduced demand for the safe-haven asset. The higher yields made non-yielding assets like gold less attractive, while the Fed’s mixed outlook added to market uncertainty. Investors turned cautious as they weighed the implications of the Fed’s stance and awaited further economic data, including upcoming inflation reports.

External Factors Add to Inflation Concerns

Geopolitical tensions, particularly in the Middle East, have pushed oil prices higher, exacerbating inflation concerns. Meanwhile, China’s recent stimulus efforts have fueled fears of global inflation, causing some investors to shy away from bonds and driving yields higher. The focus now shifts to the Consumer Price Index (CPI) and Producer Price Index (PPI) reports due later this week, which could significantly influence the Fed’s next policy steps.

Market Forecast: Cautious to Bearish

With rising yields and gold under pressure, the outlook remains cautious. The Fed is likely to adopt a patient approach for further rate changes, especially given the robust labor market. Investors should closely monitor the upcoming inflation data, as it could shape the direction of monetary policy in the coming months.