US 10-year Treasury yield eased back notably overnight following Fed’s decision to keep interest rates steady. Chair Jerome Powell’s balanced commentary offered a calm counterpoint to the election-fueled rally in yields seen earlier this week.

During the press conference, Powell downplayed the immediate impact of the election on monetary policy, stating that it “will have no effect on our policy decisions” in the near term. He emphasized that Fed’s current policy stance is “well positioned” to manage risks and uncertainties, and that the central bank can adjust its policy restraints “more slowly” or “more quickly” depending on how economic developments unfold.

Addressing recent inflation data, Powell noted that it “wasn’t terrible,” but was “a little higher than expected.” He highlighted that by December, the FOMC will have additional data to consider, including one more employment report and two more inflation reports. “We’ll make a decision as we get to December,” Powell said.

However, he issued a stark warning about the US fiscal situation, asserting that fiscal policy is “on an unsustainable path.” Powell elaborated: “The federal government’s fiscal path, fiscal policy, is on an unsustainable path. The level of our debt relative to the economy is not unsustainable, the path is unsustainable.” He added, “We see that in a very large deficit, you’re at full employment that’s expected to continue, so it’s important that be dealt with. It is ultimately a threat to the economy.”

More on FOMC:

• Fed Review: In a Good Place After All
• Fed Continues To Dial Back Policy Restraint via 25 bps Rate Cut
• FOMC Focused on Health of Labour Market and Success with Inflation

Technically, 10-year yield has encountered notable resistance from medium term falling trend line and 61.8% retracement of 4.997 to 3.603 at 4.464. Some consolidations would be seen first, but such consolidations should be relatively brief as long as 4.223 support holds. Rise from 3.603 is expected to resume sooner rather than later. Sustained trading above 4.464 will pave the way to retest 4.997 high. Nevertheless, break of 4.223 will argue that deeper correction is underway back to 55 D EMA (now at 4.075).

Fed is widely anticipated to announce a 25bps rate cut today, lower the federal funds rate to 4.50%-4.75%. While Fed Chair Jerome Powell is likely to sidestep any definitive remarks about the implications of Donald Trump’s election win, the market will be watching closely for any signs of how Fed might respond to inflationary impacts from new fiscal policies.

Powell’s stance on inflation will be particularly scrutinized in light of expected policy shifts under Trump, especially on any indications that Fed is adopting a more vigilant approach toward inflation given that Trump’s policies could drive up spending, which might, in turn, fuel price increases. Any hint of a shift to a more defensive stance against price pressures could influence expectations for the rate path in 2025.

Although fed funds futures still reflect around a 67% probability of another 25 bps cut in December, this is slightly down from over 70% before the election. More importantly, Fed may move more conservatively in 2025, cutting rates only twice to reach a target range of 3.75%-4.00% by mid-year, then pausing for further assessment.

A key development to watch is the 10-year Treasury yield, which has been in a sustained rally since September. After gapping up yesterday, the yield is testing a critical technical level at 61.8% retracement of 4.997 to 3.603 at 4.464. Sustained break there will further solidify the case that correction from 4.997 has completed with three waves down to 3.603. Further rally should then be seen to retest 4.997 high next.