Why Aggressive Rate Cuts Are Over — & What It Means for Long-End Yields

• Fed projects 2.3% growth for next year with policy rates now 'within a broad range of estimates of neutral' - marking a shift from previous guidance
• 30-year Treasury yields at 4.86% signal market confidence in continued expansion supported by fiscal stimulus and global deficit spending
• Inflation progress noted with tariff-excluded inflation already in low 2% range, though goods inflation expected to peak in early 2026 from import levies

The Federal Reserve implemented an anticipated rate cut in December, having reduced rates by 175 basis points since September 2024. Fed Chair Powell adopted a dovish tone, citing labor market risks and announcing Treasury bill purchases, which triggered a bull steepening in yields and risk asset rally. However, Powell indicated the fed funds rate is now "within a broad range of estimates of neutral," signaling the aggressive easing cycle is ending.

With U.S. growth projected at 2.3% for next year and policy near neutral levels, further significant cuts appear unlikely. Major central banks globally, including the ECB, RBA, and Bank of Canada, are similarly positioned, with their next moves potentially being rate hikes rather than cuts. This shift reflects concerns that continued aggressive easing amid strong growth and fiscal deficit spending could overheat economies.

Long-term Treasury yields have responded accordingly, with 30-year yields rising 35 basis points from October lows to 4.86%. Similar movements in global long-maturity bonds indicate investors are pricing in sustained economic expansion and strong fiscal stimulus through 2026.

Inflation progress remains evident, with Powell noting most overshoots stem from tariff-driven goods categories rather than domestic overheating. Excluding tariff-affected goods, inflation sits in the low 2% range, while services inflation and wage pressures continue easing. Goods inflation is expected to peak in early 2026 as import levies create one-time price adjustments.

Market implications suggest the yield curve will likely continue steepening, with short rates stabilizing while long-end yields remain rangebound but biased upward. Expected tax cuts and global fiscal programs support this constructive growth outlook, marking a definitive end to the aggressive rate-cutting era that characterized recent monetary policy.