investors weigh interest rate outlook

Treasury yields fell Thursday as investors digested comments from Federal Reserve Chairman Jerome Powell, who suggested a September rate cut was on the table, along with a jump in U.S. jobless claims.

The benchmark 10-year Treasury yield traded at 3.997%, reaching its lowest level since Feb. 2. Meanwhile, the 2-year Treasury yield the slipped to 4.23%.

Yields and prices move in opposite directions. One basis point equals 0.01%.

Yields fell on Wednesday after Fed Chairman Powell hinted at a September rate cut after the central bank’s July meeting concluded.

“The broad sense of the committee is that the economy is moving closer to the point at which it would be appropriate to reduce our policy rate,” he said.

Powell added the Fed would weigh economic data, expectations and risks alongside inflation and labor market signals, and respond accordingly. Depending on these factors, “a reduction in our policy rate could be on the table as soon as the next meeting in September,” he said.

Data released Thursday morning hinted at a souring of the economic picture. Initial jobless claims surged to 249,000 for the week ended July 27, well above a Dow Jones forecast of 235,000. Continuing claims also rose to their highest level since November 2021.

On top of that, the ISM manufacturing index came in at 46.8. That’s well below a Dow Jones estimate of 48.9. A reading below 50 indicates a contraction in economic activity for the sector.

“The ISM shortfall is just the latest sign of cooling domestic growth conditions, and another sign that the Fed should have commenced its easing cycle yesterday instead of waiting until Sept,” wrote Adam Crisafulli of Vital Knowledge.

Three Fed meetings remain on the calendar for this year.