Recent economic data point to renewed inflationary pressure stemming from the conflict in the Middle East, while labor market conditions and consumer spending continue to demonstrate resilience. Headline measures of inflation have moved further above the Federal Reserve longer-run objective, even as core readings remain more contained. The Chandler team expects the Federal Reserve to maintain the federal funds rate at its current level over the next six months. U.S. trade and fiscal policy, alongside geopolitical developments in the Persian Gulf, remain key sources of elevated market uncertainty.
The Federal Reserve April Federal Open Market Committee meeting concluded with policymakers maintaining the target range at 3.50%-3.75% for a third consecutive meeting, in line with market expectations. The decision marked the most divided Committee vote since October 1992, as four members dissented in an 8-4 split. Governor Stephen Miran preferred a 25-basis-point reduction, while Cleveland Fed President Hammack, Minneapolis Fed President Kashkari, and Dallas Fed President Logan opposed retaining the easing bias in the post-meeting statement. The statement acknowledged that inflation remains elevated, in part reflecting the recent increase in global energy prices. With Chair Jerome Powell’s term scheduled to expire on May 15, the meeting was widely viewed as his final time leading the Committee. Powell indicated he intends to remain on the Board of Governors through the conclusion of ongoing investigations tied to the Federal Reserve renovation project. The nomination procedure of Kevin Warsh as the next Federal Reserve Chair has continued to advance through the Senate confirmation process.
The US Treasury yield curve steepened in April, as the 2-year Treasury yield rose 7 basis points to 3.87%, the 5-year Treasury was up 7 basis points to 4.01%, and the 10-year Treasury yield was 5 basis points higher at 4.37%. The 3-month Treasury yield edged 2 basis points lower to 3.68%. The spread between the 2-year and 10-year Treasury yield points on the curve was 1 basis point wider from March at +52 basis points at April month-end. The spread between the 2-year Treasury and 10-year Treasury yield one year ago was +56 basis points. The spread between the 3-month and 10-year Treasury yield points on the curve was +72 basis points in April versus +60 basis points in March.
U.S. Treasury yields drifted higher across most maturities in April, as escalating tensions in the Persian Gulf and the related surge in crude oil prices reignited concerns over the trajectory of inflation. The front-end of the curve was anchored by the Federal Reserve decision to leave the policy rate unchanged for a third consecutive meeting, while intermediate and longer-dated yields drifted higher on the back of stronger than expected first quarter earnings, a record-setting equity rally, and the prospect of fewer rate reductions this year. Despite the prominence of dissents at the April Federal Open Market Committee meeting, the Chandler team continues to expect a gradual steepening of the yield curve, led by lower short-term rates as the policy rate moves toward a more neutral range over the balance of 2026.