Fed Chair Powell’s eight-year tenure as Fed chair officially ended today, and he exited the market under heavy pressure from rapidly rising yields and renewed inflation concerns.
US Treasury yields rose across the curve. The 2-year note yield rose 8.7 basis points on the day and 19.0 basis points for the week to 4.079% – the highest level since March 2025. Meanwhile, the 10-year note yield rose 13.8 basis points today and 23.7 basis points for the week to 4.597%, its highest level since May 2025.
A major reason behind the move was another sharp rise in oil prices, which continued to fuel inflation fears. WTI crude for July delivery rose $4.24, or 4.37%, to close at $101.16. For the week, crude oil rose $6.48, or 6.84%, adding to concerns that inflationary pressures may persist longer than the market expected.
US equities did not react well to the combination of higher yields and rising energy prices. The major indices gave back most of their weekly gains in Friday trading. The Dow Jones Industrial Average fell -1.07% on the day and ended the week down -0.17%. The S&P 500 declined -1.24% on Friday but still managed a modest weekly gain of 0.13%. The NASDAQ dropped -1.54% on the day and slipped -0.08% for the week.
Small-cap stocks were particularly badly hit as rising yields pressured growth and financing expectations. The Russell 2000 fell -2.44% on Friday and closed the week down -2.37%.
In the foreign exchange market, the US dollar strengthened broadly as rising yields boosted demand for the greenback. All major currencies declined against the dollar on the day:
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Euro -0.37%
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JPY -0.26%
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GBP -0.58%
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CHF -0.41%
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CAD -0.22%
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AUD -1.00%
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NZD -1.23%
For the week, the British pound was the weakest major currency amid political uncertainty and sharply higher yields in the UK and US. The New Zealand dollar was next weakest as risk-free flows intensified:
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Euro -1.35%
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JPY -1.32%
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GBP -2.26%
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CHF -1.38%
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CAD -0.51%
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AUD -1.35%
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NZD -2.17%
The combination of higher yields and a stronger US dollar also weighed on the precious metals. Gold fell $110.11, or -2.37%, to $4,539.39 – its biggest one-day fall since March 26. Silver fell $7.51, or -9.03%, to $75.89, its biggest daily decline since February 12.
On the economic front, the Empire State Manufacturing Index came in stronger than expected at 19.6 versus 7.5, reaching its highest level since April 2022. However, a large part of the strength appeared to be tied to rising prices, adding to inflation concerns rather than alleviating them.
Earlier this week, both the CPI and PPI inflation reports came in significantly higher than expected, raising concerns that the upcoming PCE inflation data could also yield a surprise. As a result, there has been a significant shift in market pricing, with traders now seeing more potential for additional tightening rather than easing.
The change contrasts with comments from incoming Fed Chairman Kevin Wersh, who advocated low rates while campaigning for the role under President Trump. However, once seated at the Fed, Wersch will have only one vote on the 12-member FOMC committee. Given recent inflation data and the sharp rise in yields, it is difficult to imagine that the new Chairman will support a rate cut in his first policy meeting.
