The yield on the U.S. 10-year Treasury bond was flat at 4.9938% after attempting to retest the 5% mark, having broken through that threshold on Tuesday for the first time in three years. The Federal Reserve will announce its latest policy decision later in the day, followed by a media conference by Fed Chair Kevin Warsh.
"We maintain our tactically cautious/neutral view into the Fed," JPMorgan analysts wrote, noting that the market consensus expectation is for a 25 basis-point rate hike accompanied by little forward guidance.
The meeting "could be a clearing event" for the market "to reset rate hike expectations," they added, but warned "inaction risks institutional credibility". If no hike materialises and bond yields extend their rally on higher inflation expectations, the bank anticipates the S&P 500 could move 1.25%-1.75% lower.
U.S. President Donald Trump has repeatedly stated a preference for lower interest rates, saying last month the U.S. will stop trading with countries with which it has a trade deficit if the Fed does not cut rates.
Traders have looked through these threats and believe that a hike from the Federal Reserve is almost assured, pricing an implied 93% probability of a 25-basis-point hike when it announces its policy decision, according to the CME Group's FedWatch tool, compared to a 61.2% chance a week ago.
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