The post-pandemic economy (since the 2020 COVID crisis) has been marked by unconventional behaviors and unexpected outcomes that have made economic analysis increasingly complex.
Although Fed rate cuts traditionally push yields downward, today’s reality is quite the opposite. After years of volatility triggered by COVID-19 and a global restructuring of trade relationships, financial markets are moving in unpredictable ways — raising a key question for investors:
Why are US Treasury yields rising even though the Federal Reserve has begun cutting interest rates?
Fed Rate Cuts vs. Rising Bond Yields: An Economic Paradox
Since last September, the Federal Reserve has been easing monetary policy, cutting interest rates by a total of 1.5 percentage points, followed by a long pause through 2025.
Today, another quarter-point cut is expected as part of a broader shift from restrictive policy toward a more neutral stance.
Under normal market conditions, this transition would lower Treasury yields — and in turn reduce mortgage rates and borrowing costs.
But the reality looks very different.
As of Tuesday afternoon:
- The 30-year Treasury yield stands at around 4.8%
- The 10-year yield is about 4.17%
Both levels are higher than where they were when the easing cycle began.
Why Are Yields Rising Despite Rate Cuts?
Analysts attribute this unusual behavior to several key factors:
1. A Shifting Global Trade System and Heightened Political Uncertainty
Volatility in US trade policy and increased political risk are pushing investors to demand higher returns to compensate for the growing risks associated with holding long-term US government debt.
2. Concerns About the Rapidly Expanding US Fiscal Deficit
Historically, deficits have had limited impact on Treasury yields thanks to the strength of the US economy and the dollar’s status as the global reserve currency.
But today’s environment suggests this dynamic may be starting to change.
3. Market Skepticism About the Fed’s Ability to Continue Cutting
Some financial institutions believe inflation remains relatively high, which may make investors doubtful about the Fed’s long-term easing trajectory.
More Optimistic Perspectives
Despite the divergence, several positive explanations exist:
Confidence in Avoiding a Recession
Some analysts argue that higher yields may reflect investor confidence in the economy’s ability to achieve a “soft landing” — slowing inflation without falling into recession.
A Return to Pre-2008 Interest Rate Norms
Other economists believe that the ultra-low interest rate environment that followed the 2008 financial crisis was an historical anomaly.
Current yields may simply represent a return to more normal, long-term averages.
What Does This Mean for the US Economy?
Higher yields translate into higher borrowing costs for both households and businesses, including:
- Mortgage rates
- Commercial and business loans
- The cost of financing projects and investments
Despite government efforts to lower these costs and stimulate economic activity, financial markets may not easily comply.
Bottom Line: Fed Rate Cuts Do Not Guarantee Lower Real-World Interest Rates
The current easing cycle reveals a critical truth:
A Fed rate cut does not automatically mean lower yields or reduced borrowing costs for consumers and investors.
Geopolitical shifts, fiscal concerns, and evolving market sentiment are now playing a larger role than ever in determining the direction of Treasury yields — and the cost of borrowing across the economy.
