Bond Market Signals Fed Rate Cuts Ahead as Treasury Yields Dip Below Fed Funds Rate

Treasury Secretary Scott Bessent highlighted a critical market signal ahead of his weekly meeting with Federal Reserve Chairman Jerome Powell. The 2-year Treasury yield has fallen below the federal funds rate, a rare inversion that typically precedes central bank rate cuts. "We are seeing that two-year rates are now below fed funds rates, so that’s a market signal that they think the Fed should be cutting," Bessent stated during a Fox Business Network appearance.

The 2-year note yield dropped to 3.7%, nearly 70 basis points lower than the Fed’s effective rate of 4.33%. This growing divergence suggests traders are pricing in imminent monetary policy easing. Such yield curve dynamics have historically foreshadowed economic slowdowns and preceded Fed pivot periods.