The Fed cut interest rates again but one key number shows why borrowers could still have a tough time in 2025

• The 10-year Treasury yield is the key rate to watch for many borrowers.
• The bond yield has been rising, not falling, even as the Fed has cut rates by 100 basis points since September.
• Borrowers might not get much more relief until the market is convinced rates will move a lot lower.

The most important rate for US borrowers is moving higher, not lower, after the Federal Reserve's third rate cut in as many months on Wednesday.

That rate is the 10-year US Treasury yield, a key lending benchmark for everything from mortgages to corporate debt.

On Thursday, the 10-year Treasury yield rose to its highest level since late May, hitting an intraday peak of 4.57%. That's nearly 100 basis points higher since the Fed delivered its first interest rate cut of the cycle in mid-September. The Fed has cut its benchmark rate by 100 basis points in the last three months.

The divergence in a falling federal funds rate and a rising 10-year Treasury yield highlights the ultimate truth in markets: They're forward-looking, and the bond market is signaling rates will remain higher for longer.

The 30-year fixed mortgage rate—which tracks the 10-year bond yield—is Exhibit A.

The rate jumped more than 20 basis points on Thursday in reaction to the Fed's rate cut, climbing above 7%, according to Mortgage News Daily. The rate had been edging back toward 6.5% in recent weeks.

Meanwhile, short-term interest rates on high-yield savings accounts and money-market funds declined by about 25 basis points, a double whammy for consumers who might be saving for a down payment cash in such an account

The moves highlight that the Fed's short-term lending rate has little impact on long-term borrowing rates.

For rates to fall further and for consumers and businesses to get more relief in the form of cheaper debt, the 10-year Treasury yield needs to move significantly lower. That probably won't happen until the Fed turns more dovish.

However, the situation also creates a dilemma for borrowers, which is that the Fed probably won't proceed with steeper interest rate cuts unless the economy shows signs of weakening.

Callie Cox, chief market strategist at Ritholtz Wealth Management, recently summarized the situation facing prospective home buyers in a note.

"We'd likely need the economy to fall apart. A recession, in Wall Street terms. That's the deal we're faced with today. Your job or your dream house. You can only pick one," Cox said.

Investors had already been adjusting their outlook for interest rates long before Wednesday's Fed decision.

That's evidenced by the fact that the 10-year US Treasury yield had steadily increased since September, even as the market correctly guessed the Fed was gearing up for more cuts.

The Fed is now forecasting two 25-basis point rate cuts in 2025, down from four it had previously projected and down from the three cuts that markets had expected before Wednesday's meeting.

Citi pushed the outlook out even further, stating Thursday that the market is pricing in just two interest rate cuts between now and mid-2026.