Core Viewpoint - The Federal Reserve is expected to initiate a series of interest rate cuts starting in 2025, with projections indicating a decline that may continue into the third quarter of 2026 [2][3][4] Interest Rate Cuts and Market Expectations - The Federal Open Market Committee (FOMC) has reduced the fed funds target rate by 0.25% to a range of 4% - 4.25% [3] - Financial markets anticipate a steady decline in the fed funds rate, potentially bottoming out just below 3% by the end of 2026 [4][10] Impact on Households - Lower interest rates will affect American households in two significant ways: reduced income from investments and lower payments on loans such as mortgages [5][6] - The average yield on money market funds is currently 4.08%, which is favorable compared to the inflation rate of 3.1% [7][8] Money Market Funds Outlook - As the Fed reduces interest rates, yields on money market funds are expected to decline, potentially falling below 3% by late 2026 [9][10] - The current inflow into money market funds, which exceeds $7.3 trillion, may reverse as yields decrease [8] Yield Curve Dynamics - An inverted yield curve has led to higher yields on short-term bonds compared to longer-term bonds, driving inflows into money market funds [11] - A return to a positively sloped yield curve is anticipated, making longer-term bonds more attractive as front-end rates decline [12][14] Mortgage Market Implications - Lower interest rates are expected to facilitate cheaper borrowing, particularly for mortgage refinancing, with average 30-year mortgage rates dipping below 6.5% [16][17] - Increased mortgage refinancing activity is anticipated as homeowners take advantage of lower rates, which are more closely correlated with the 10-year Treasury yield [17][18] Overall Economic Impact - The net effect of lower interest rates is viewed positively, as they provide cheaper borrowing costs while also reducing income from short-term investments [20][21] - The favorable environment for equities and other risk assets is also a significant consideration for investors [22]

Group 1: Treasury Yields Overview - The yield on the 10-year Treasury note was 4.06% as of September 12, 2025, while the 2-year note was at 3.56% and the 30-year note at 4.68% [1] - A long-term view of the 10-year yield shows significant historical context, starting from 1965, including the impact of the 1973 oil embargo [2] Group 2: Inverted Yield Curve and Recession Indicators - An inverted yield curve occurs when longer-term Treasury yields are lower than shorter-term yields, with the 10-2 spread being a reliable leading indicator for recessions [2] - The average lead time to a recession from the first negative spread date is approximately 48 weeks, while using the last positive spread date yields an average lead time of 18.5 weeks [4][6] Group 3: Mortgage Rates and Federal Funds Rate - The Federal Funds Rate influences borrowing costs for banks, which typically affects mortgage rates; however, recent trends show mortgage rates declining despite the Fed holding rates steady [7] - The latest Freddie Mac survey reported the 30-year fixed mortgage rate at 6.35%, the lowest since October 2024 [7] Group 4: Treasury ETFs - ETFs associated with Treasuries include Vanguard 0-3 Month Treasury Bill ETF (VBIL), Vanguard Intermediate-Term Treasury ETF (VGIT), and Vanguard Long-Term Treasury ETF (VGLT) [9]