On September 17, 2025, the Federal Reserve delivered a widely expected 25-basis points (“bps”) cut, setting the federal funds target range at 4.00%–4.25%. This was the first easing since last December. Intuitively, many Borrowers might have thought the move would have brought relief to long-term rates. E.g., if rates were cut 25-bps, my 10-year term loan pricing should have gone from 5.00% to 4.75%. In the words of the legendary Lee Corso, “not so fast, my friend!”

Short vs. Long: Different Engines

Short-term rates (Fed funds, SOFR) sit in the Fed’s immediate orbit. A cut directly pulls them lower.

Long-term rates (10-year Treasuries, long tenor swaps, etc.) are driven by expectations about inflation, growth, and the path of future Fed moves; not just the actual movement of the Fed.

What Markets Expected Going In

Heading into the meeting, the market had predicted a small chance of a double cut (50-bps), generally between 4 and 8% (~5.8% as pictured below); the market generally does this as a “just-in-case” type of scenario. The chance of a single cut was definitively priced in and a forgone conclusion (e.g., “base case”).

What Happened After the Announcement

When the Fed delivered the base case (25-bps), traders took out that tiny probability of a bigger move. With the “double-cut” scenario off the table (for now), the curve repriced, and the 10-year yield moved up immediately after the decision.

Why This Feels Counterintuitive

It’s natural to view rates as a single lever (cause & effect): Fed cuts then everything falls. The reality is much more complicated; long-term yields are the sum of expectations: future short-term rates, inflation risk premium, growth outlook, politics, and more. If a cut arrives as expected, or with guidance that’s less dovish than hoped, long-term rates can rise even as the Fed eases.

What It Means for Borrowers

If you’re floating on SOFR, you benefit immediately from the cut. If you’re fixing long-term, your rate depends on where the market thinks we’re headed, not just where the Fed set policy this week. Keep an eye on incoming data and Fed communication that shape those expectations. But also #GKCO! #BEATUNC!

Got questions? Email solutions@cmacpartners.com or schedule a call with a member of our team.