TLT Sinks: Are Fed Rate Cuts Priced In?
TLT has fallen since the U.S. central bank's .50% rate cut.
Are Fed rate cuts priced in?
Since the U.S. central bank made its hefty half-point cut on Sept. 18, bond exchange-traded funds have mostly declined, suggesting that investors had already anticipated the Fed’s big move.
The highly popular iShares 20+ Year Treasury Bond ETF (TLT) has fallen by around 1% since the Fed’s decision, while the iShares 7-10 Year Treasury Bond ETF (IEF) has lost about 0.2%.

To be sure, these aren’t huge moves, but they do raise the question of how much Fed easing is already priced into bond markets (bond yields and prices move inversely).
The federal funds rate currently stands at 4.75% to 5% after the Fed’s 50 basis points cut, while the fed’s “dot plot”—Fed officials’ best guess as to where rates could head from here—indicates that it could fall to 3.38% by the end of 2025 and 2.88% by the end of 2026.
Market expectations are more aggressive than the Fed: The pricing of fed funds futures suggests that rates could drop to 2.82% by the end of next year (and stay around there through 2026).
Will Cuts Stimulate the Economy?
But even if that’s what occurs, one could make the case that the 10-year Treasury yield at 3.6% and a 30-year Treasury yield at 3.9% already reflect that.
Unless investors start to believe that the federal funds rate will fall significantly below 2.8%, further declines in Treasury bond yields might be hard to come by.
That’s especially the case since the Fed’s aggressive rate cuts—if they happen—make it more likely that the economy keeps humming along and inflation stays at or above the Fed’s target.
On the other hand, there are some who believe that either a recession is likely to occur and/or the federal funds rate will fall much more from here than the market is currently pricing in.
If that’s the case, then maybe there is another 100 or 200 basis points of downside potential in Treasury bond yields, along with gains in bond ETFs.