US Treasury yields firm as Fed rate cut bets rise, signal gradual easing ahead

• US Treasury yields hold firm as expectations rise for a second consecutive Fed rate cut following last week's 50-bps reduction.
• Minneapolis Fed President Kashkari and Atlanta's Bostic both support gradual cuts, with Kashkari forecasting rates at 4.4% by the end of 2024.
• Chicago Fed's Austan Goolsbee signals more rate cuts are needed, while Bostic downplays the likelihood of future 50-bps cuts.

US Treasury yields finished the session firm amid increasing bets that the US Federal Reserve (Fed)will lower borrowing costs for the second consecutive meeting, following last week's 50 basis points cut.

Fed officials confident in inflation trend, signal caution on further cuts

Fed officials had grown worried about the labor market, acknowledging that risks are tilted to the upside. Regarding inflation, they grew confident that prices are moving sustainably to hit the Fed's 2% goal.

On Monday, Minneapolis Fed President Neel Kashkari said that cutting 50 basis points (bps) was correct, adding that he expects rates to finish 2024 at around 4.4%. Atlanta's Fed President Raphael Bostic echoed some of his comments, though he said that they wouldn't be cutting rates in 50 bps chunks.

Bostic added that risks to the labor market had increased and didn't expect the Unemployment Rate to increase much further.

Finally, Chicago's Fed President Austan Goolsbee stated that many more rate cuts are needed over the next year and that the jobless rate is at levels many consider full employment.

Data-wise, S&P Global revealed September Flash PMIs, which portrayed a mixed reading regarding the US economy. The manufacturing activity index hit its lowest since June 2023, while the services PMI exceeded estimates of 55.3 and came at 55.4.