U.S. Treasury yields opened the new week in a steady posture as investors leaned further into expectations that the Federal Reserve will deliver a year-ending rate cut on Wednesday.
The bond market’s calm tone showed just how firmly traders believe the central bank is preparing to change direction after nearly two years of aggressive tightening.
By 2:39 a.m. in New York, the 10-year Treasury yield stayed anchored at 4.141% and the 30-year held near 4.794%. The 2-year, which usually mirrors expectations around Fed actions, hovered at 3.561% with barely a twitch. The stability across maturities suggested markets were no longer in a guessing game. Yields move opposite prices, and both sides sat locked in place as traders waited for the Fed’s announcement.
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Odds of a quarter-point cut have surged to roughly 87%, according to the CME FedWatch tool. A month ago, the probability sat close to 67% as markets remained unsure about the Fed’s tolerance for softer data. That uncertainty faded quickly after last week’s reports: ADP posted a surprise drop in private payrolls, and the Labor Department recorded jobless claims falling to their lowest point since September 2022. Both signals pointed to an economy losing a bit of steam, though in a way that gives the Fed comfortable room to ease policy without appearing reckless.
Some Wall Street players have been recalibrating their own expectations. Morgan Stanley reversed its original prediction for a December cut, admitting that “it seems we jumped the gun,” though the bank still sees room for a move lower based on increasingly soft language from Fed officials. JPMorgan and Bank of America remain in the camp that expects a cut, grounding their forecasts in recent policymaker remarks that leaned away from aggressive tightening.
The larger economic backdrop in the U.S. has remained more robust than many anticipated. Treasury Secretary Scott Bessent said the holiday season has been “very strong,” offering reassurance that consumer spending is still carrying significant weight.
In an appearance on CBS News’ Face the Nation, he said, “The economy has been better than we thought. We’ve had 4% GDP growth in a couple of quarters. We’re going to finish the year, with 3% real GDP growth.”
His comments set the stage for an unusual situation in which the Fed may cut rates even as growth remains firm.
A rate cut at this moment would send a strong signal. Borrowing costs across mortgages, auto loans, credit cards, corporate debt, and municipal financing tend to cool when Treasury yields fall and central bank policy shifts lower. Households and businesses would likely feel some relief after more than a year of elevated financing expenses. A softer policy stance could also help stabilize sectors that have been weighed down by high rates, including housing, commercial real estate, and small-business lending.
For financial markets, a cut would likely lift equities further into year-end as investors price in a friendlier 2026. The bond market, which has taken the brunt of the Fed’s tightening cycle, may finally get breathing space if yields drift lower on expectations of a gentler policy path.
The ripple effects won’t stop at U.S. borders. Central banks across Europe and Asia are watching the Fed’s decision closely as they prepare their final policy meetings of the year. The Swiss National Bank is up on Thursday, followed by the Bank of England and European Central Bank on December 18. Each institution is balancing easing inflation with uneven growth, and the Fed’s tone could shape how far they feel able to loosen their own stance.
In Asia, the Bank of Japan meets on December 19 for its last policy gathering of 2025. Officials have hinted at the early stages of policy normalization, but the bank remains cautious, preferring to see durable wage growth before committing to any major shift.
Global markets are currently sitting in a holding pattern. The Fed’s announcement is shaping up to be the final decisive moment of the year, one that will influence everything from borrowing costs to currency flows. Some analysts believe that if the central bank delivers the expected cut, it could mark the official start of a new phase—one where the fight against inflation gives way to managing a gradual cooldown without tipping the economy into unnecessary strain.