US 10-year Treasury yields rose to a fresh 6-1/2-month high on Thursday after the Federal Reserve flagged a slower pace of easing next year as it lowered rates by 25 basis points (bps).

Fed Chair Jerome Powell said reductions in borrowing costs hinge on further progress in lowering stubbornly high inflation.

The US 10-year yield hit its highest since late May at 4.544% in early London trade.

It was last up 4.5 basis points after jumping more than 11 bps on Wednesday.

On the front end of the curve, the two-year yield, more sensitive to the policy rates’ outlook, was down 3 bps to 4.33% after hitting a new three-week high at 4.367% the day before.

Slower progress on inflation, which is not seen returning to the 2% target until 2027, translates into a slower pace of rate cuts and a slightly higher ending point for rates at 3.1% in 2027 versus the prior “terminal” rate of 2.9%.

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The Fed also released its ‘dot plot’ interest rate projections which show they currently anticipate just two quarter-percentage-point rate reductions by the end of 2025, half a percentage point less in policy easing next year than officials anticipated as of September.

Though these expectations can be volatile. “I would caution against taking too much steer from the dot plot,” said Kyle Chapman market analyst at Ballinger.

“Narratives about inflation and the labour market have swung countless times over the past few years,” Chapman argued.