10-year Treasury yield falls as traders bet Fed rate increase can tamp down inflation

Chairman of the Federal Reserve Kevin Warsh delivers remarks after being sworn in during a swearing-in ceremony in the East Room of the White House on May 22, 2026 in Washington, DC.

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Treasury yields were lower on Wednesday after the Federal Reserve increased its overnight rate by a quarter percentage point, as was expected — a signal that investors think the central bank can drive inflation lower.

The benchmark 10-year Treasury note yield was down more than 3 basis points at 4.957%, while the yield on the 30-year Treasury bond fell more than 4 basis points to 5.322%. The 2-year Treasury note yield dropped more than 4 basis points to 4.619%.

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

The Fed hiked rates for the first time in three years. Its overnight lending rate now sits in a 3.75%-4% range, up from 3.5%-3.75%.

"Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal," the Fed's policymaking committee said in a statement. Fed Chairman Kevin Warsh is set to hold a news conference at 2:30 p.m. ET

Wednesday's announcement comes after a sharp rise in oil prices, driven by escalations in the U.S.-Iran war. Those high energy prices have begun showing up in recent inflation reports, including the August consumer price index figures.

The hot inflation data has put pressure on the long end of the Treasury curve in recent weeks, pushing the 10-year Treasury yield to a 2007 high on Tuesday.

"The Fed has signaled it does not at this stage envisage an aggressive tightening cycle," said Kay Haigh, global head and CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management. "Most FOMC members see a total of two hikes this year per the SEP, and it will likely skip October's meeting given its proximity to the midterm elections. One more hike this year in December is our base case, although this remains contingent on upcoming CPI reports and the path of energy prices."