Markets reacted negatively to the Fed's rate cut yesterday, with the Dow dropping 1,100 points, the S&P falling 3%, the Nasdaq losing 3.5%, and the Russell 2000 small-caps declining 4.4%. The 10-year yield surged, pushing mortgage rates above 7%. The market was expecting three more rate cuts next year, but the Fed's projections suggest only two. Economic growth and inflation have been stronger than anticipated since September's rate cut, leading to a rise in the 10-year Treasury yield from 3.
6% to 4.56%. While the yield curve has un-inverted, which is positive for banks and the economy, rising inflation expectations are a concern. The 10-year TIPS yield has spiked, indicating potential for stickier inflation. High interest rates also pose a fiscal problem, as they contribute significantly to the national debt.
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