The yield on the U.S. 10-year Treasury note slipped to nearly 4.12% after the Federal Reserve implemented its final 25 basis point rate cut of 2025, marking the third consecutive dovish decision of the year.
Bond markets strengthened as investors recalibrated their expectations for monetary policy in 2026. Chair Jerome Powell’s acknowledgement of weakening labour conditions triggered fresh demand for treasuries, reversing an early selloff and contributing to a steeper yield curve.
With the Fed adopting a less hawkish tone than traders anticipated, market pricing now reflects expectations of two additional rate cuts in 2026. The central bank also announced it would begin purchasing short-term Treasury bills from December 12, starting with a $40 billion injection to bolster liquidity.
Updated projections released by the Fed indicate stronger growth ahead. The U.S. economy is now forecast to expand by 2.3% in 2026 — up from September’s estimate of 1.8% — with growth stabilizing at 2% in 2027. Inflation expectations were revised downward to 2.5% in 2025 and 2.4% in 2026, still above the 2% target.
The central bank confirmed that elevated T-bill purchases will continue for several months before tapering gradually.
In currency markets, the U.S. dollar weakened against major peers during the New York trading session following the rate decision, reflecting shifting investor sentiment.
