U.S. Treasury yields moved lower on Wednesday after the Federal Reserve delivered its third straight interest rate cut.
The benchmark 10-year Treasury yield fell more than 3 basis points to 4.153%, while the 30-year Treasury yield slipped more than 1 basis point to 4.795%. The 2-year Treasury yield dropped more than 7 basis points to 3.542%.
One basis point is equivalent to 0.01%, and yields and prices move in opposite directions.
The Federal Open Market Committee, the group that sets the overnight borrowing rate, voted to reduce its key overnight lending rate by a quarter percentage point, or 25 basis points. This took the Fed's key interest rate down to a range of 3.5% to 3.75%.
Heading into the meeting, traders had priced in approximately a 90% chance of a quarter percentage point, according to the CME FedWatch Tool. After the decision, traders upped their bets that the central bank would go lower with rates than their new 2026 forecast calls for. Fed funds futures suggested a more than 77% chance of two more rate cuts in the new year, the CME FedWatch Tool showed.
While the U.S. central bank voted 9-3 in favor of the cut, it featured both hawkish and dovish dissents. Governor Stephen Miran backed a steeper half percentage point reduction. On the other hand, regional presidents Jeffrey Schmid of Kansas City and Austan Goolsbee of Chicago favored maintaining the current rate.
The Fed also signaled that a weakening jobs market is increasingly on its radar, which traders may take as a sign that it could be more likely to step in and support the labor sector.
"There is no risk-free path for monetary policy, but it seems the committee is banking on higher productivity, implying stronger growth despite softer job creation. Projections with stronger growth and lower unemployment suggest the Fed will remain committed to bringing inflation down," said Jeffrey Roach, chief economist at LPL Financial.
"Investors should expect the Fed to remain on hold in Q1, especially if the economy responds to the tailwinds from fiscal and policy support. The first cut next year may come in Q2," he continued.
Meanwhile, the central bank said it will start buying $40 billion in Treasury bills on Friday. Purchases from there are expected to "remain elevated for a few months" before they are "significantly reduced."
This comes after it said at its October meeting it would halt its balance sheet runoff, providing more liquidity to markets and the economy.
— CNBC's Jeff Cox contributed to this report.