Uncertainty in the Economy: How the 2-Year Treasury Yield Affects Federal Reserve Monetary Policy and Expectations for Interest Rate Cuts

Amidst uncertainty about the economy’s condition and its potential impact on Federal Reserve monetary policy decisions, investors closely examined economic indicators on Wednesday. At 4:54 a.m. ET, the 10-year Treasury yield had risen by more than two basis points to 4.6273%, while the 2-year Treasury yield was more than three basis points higher at 4.9414%.

Recent economic data has demonstrated resilience in the economy despite high interest rates and ongoing inflation. Expectations for Fed interest rate cuts have shifted, raising questions about whether there will be fewer cuts than previously anticipated this year. Additional economic data is expected later in the week, including durable goods orders, a first-quarter GDP reading, and the personal consumption expenditures price index.

On Tuesday, the S&P Global Flash manufacturing PMI for the U.S dropped to a four-month low of 49.9 for April, signaling contraction in the sector. This data implied to investors that the economy might be experiencing a slight slowdown. The drop in manufacturing PMI could have implications for other sectors such as consumer spending and business investment which may affect overall economic growth