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Treasury yield moves are a result of a more hawkish Jerome Powell, says Schwab's Kathy Jones
11/5/2025, 9:14:15 PM
Economic Summary
- Federal Reserve Chair Jerome Powell's more hawkish remarks caused a backup in Treasury yields, reversing the market's prior expectations for imminent easing and lifting the 10-year yield back toward roughly 4.10%.
- The market had priced in more Fed easing than warranted by the data; Kathy Jones believes those easing expectations were excessive and that December is unlikely to see a rate cut.
- Jones expects one to two Fed rate cuts in 2026 but says the Fed will move slowly and will be constrained if inflation does not decline, leaving limited policy room.
- There is a modest upside risk to inflation over the next 6–12 months, which supports some allocation to inflation-protected securities like TIPS because they currently offer positive real returns.
- Tariff-related revenue is too small relative to the deficit and economy to meaningfully affect the yield curve or fiscal dynamics.
- International bond markets (Europe and some emerging markets) have become more attractive for U.S. dollar investors, aided by a less strong dollar and strong year-to-date returns in some segments.
Bullish
- TIPS provide positive real returns and inflation protection.
- International bonds look attractive, helped by a weaker dollar.
- Broad fixed income subasset classes have delivered strong YTD returns.
Bearish
- Hawkish Powell commentary sent yields higher, pressuring bond prices and risk assets.
- Fed will have limited room to cut further if inflation remains elevated.
- Leverage loans and very low-quality high-yield credit carry elevated default and liquidity risk.
People mentioned
Kathy JonesScottJerome Powell