The Bond ETFs Fell as Fed Chairman Powell Awaits the White House's Policy Announcements

Exchange-traded funds (ETFs) tied to the bond market edged lower on Wednesday after the Federal Reserve opted to maintain its current interest rate stance. The central bank is holding off on further rate cuts as it waits for policy clarity under President Donald Trump's administration.

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Federal Reserve Chair Jerome Powell addressed the uncertainty surrounding potential changes in tariffs, immigration, fiscal policy, and regulatory measures during a press conference on Wednesday. He emphasized that the central bank must allow these policies to take shape before evaluating their possible economic effects.

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“We don’t know what will happen,” Powell said. “We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be.”

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ETF Performance and Market Reaction

ETFs providing broad exposure to U.S. investment-grade bonds closed slightly lower following the Fed’s decision. According to FactSet data:

• The iShares Core U.S. Aggregate Bond ETF (AGG) slipped 0.1%.
• The Vanguard Total Bond Market ETF (BND) also declined 0.1%.

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Meanwhile, Treasury yields remained relatively stable.

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“The market reaction was pretty muted,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “The Fed is just on hold to see how the economy evolves.”

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The central bank kept its benchmark interest rate within a range of 4.25% to 4.5%, stating that the labor market remains strong, economic growth is solid, and inflation remains somewhat elevated. The decision aligned with Wall Street expectations, as many analysts had anticipated a pause in the Fed’s rate-cutting cycle, which began last September.

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Treasury Yields Show Modest Movement

Following the Fed’s announcement, bond yields experienced slight upward movement:

• The 2-year Treasury yield rose 2.2 basis points to 4.226%.
• The 10-year Treasury yield inched up nearly one basis point, settling at 4.554%.

Since bond prices and yields move in opposite directions, the modest increase in yields reflected a cautious outlook from investors.

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Back in December, the Federal Reserve had already signaled the possibility of slowing down its pace of rate cuts in 2025. Powell cited uncertainty surrounding trade policies as a factor leading up to Trump’s inauguration.

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On Wednesday, Powell reaffirmed that the Fed would closely monitor the evolving policy landscape before making any further adjustments to monetary policy.

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“We’ll patiently watch and understand,” Powell said. He added that the Fed would not rush into any decisions until it had greater clarity on how policies unfold.

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With the Fed maintaining its cautious approach, the bond market will likely continue to react to shifts in economic policy. Investors will keep an eye on potential fiscal changes, trade developments, and inflation trends as key factors influencing future rate decisions.

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