According to Bloomberg, the Federal Reserve has reassured traders investing in the US bond market that the economy's growth is expected to slow, inflation increases are likely to be short-lived, and interest rates may decrease further by the end of the year.

Despite Chair Jerome Powell downplaying concerns about a possible recession, short-term Treasury yields declined as uncertainty surrounding the economic outlook was emphasized during his press conference. The central bank revised its growth forecasts for the year, acknowledging worries about the impact of President Donald Trump's trade policies and spending cuts on the economy. This has fueled expectations that the Fed could cut interest rates twice in 2025 based on policymakers' latest projections.

Bond investors reacted to the Fed's focus on growth uncertainty rather than long-term inflation concerns, particularly emphasizing Powell's comment that tariffs are temporary. The recent Fed meeting followed a volatile period on Wall Street as investors adjusted their expectations due to fears of economic slowdown caused by Trump's policies.

Two-year Treasury notes, which are responsive to changes in US monetary policy expectations, led the bond market rally by reducing the yield, while the 10-year yield also decreased. Simultaneously, the S&P 500 Index experienced significant gains on the day of the Fed meeting.

Although Powell highlighted the strength of the underlying economy, he also expressed concerns about elevated uncertainty and potential risks, indicating that the central bank is prepared to cut interest rates if necessary. Despite stating that the economy did not currently require intervention, Powell acknowledged the heightened levels of uncertainty and assured that any inflationary impact from tariffs would likely be temporary.