U.S. Treasury yields and the dollar moved higher on Monday as investors prepared for this week’s Federal Reserve meeting. Markets broadly expect the Fed to announce an interest rate cut, while major stock indexes traded lower.
At the same time, investors reacted to the impact of a strong 7.6-magnitude earthquake in northeast Japan. The quake led to evacuation orders for nearly 90,000 residents and prompted tsunami warnings, which were later downgraded to advisories.
Japan-related assets also felt the pressure. The iShares MSCI Japan ETF slipped 0.6%, and the dollar gained 0.3% against the yen.
The main focus this week is the Fed’s announcement on Wednesday. Although a rate cut is widely anticipated, some analysts warn that the central bank’s policy committee could be sharply divided. The Federal Open Market Committee has not seen three or more dissents in a single meeting since 2019, and such disagreements have occurred only nine times since 1990.
Many investors also expect a milder easing cycle than previously projected. According to CME Group’s FedWatch Tool, markets place an 87.4% chance on a 25-basis-point cut. Only a few weeks ago, odds were under 30% before comments from Fed officials shifted expectations.
Peter Cardillo, chief market economist at Spartan Capital Securities, noted that markets may be preparing for a possible pause after this cut. However, he believes such a pause in early 2026 is unlikely.
Japan’s Rate Outlook Could Shift
The dollar strengthened against the yen following the earthquake. Analysts suggested that the Bank of Japan might delay a planned rate hike next week depending on the extent of the damage. The U.S. dollar index also edged higher.
The BOJ will hold its next policy meeting on December 18–19, 2025. A policy statement is expected on the second day.
Japan’s economy contracted faster than previously estimated in the third quarter, as updated data revealed weaker capital spending. Even so, economists said the revision is not significant enough to alter the central bank’s broader outlook.
U.S. Treasury yields also climbed after the earthquake. The benchmark 10-year Treasury yield rose 3.1 basis points to 4.17%, after touching 4.192%—its highest level since September 26. This puts the yield on track for a third straight session of gains.
Stock Market Reaction
On Wall Street, most major S&P 500 sectors declined except for technology. Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, said the market remains supported by a strong rally that started after a sharp selloff in late November. He added that he sees no major factors likely to disrupt the market’s current trend.
The Dow Jones Industrial Average dropped 215.67 points, or 0.45%, to 47,739.32. The S&P 500 slipped 23.89 points, or 0.35%, to 6,846.51, while the Nasdaq Composite fell 32.22 points, or 0.14%, to 23,545.90. Despite the day’s weakness, the S&P 500 remains up about 16% for the year.
Investor attention also turned to a bid by Paramount Skydance to acquire Warner Bros. Discovery, which challenged a competing offer from Netflix. Netflix shares fell 3.4%.
Global stocks also weakened. MSCI’s world equity index dropped 0.27% to 1,008.04, while the STOXX 600 in Europe slipped 0.07%.
Several other central banks are set to meet this week. Policymakers in Canada, Switzerland, and Australia are all expected to keep rates steady. The Swiss National Bank may consider easing to offset the strength of the franc, but it has little room with rates already at 0%. In Australia, stronger-than-expected economic data has led markets to abandon expectations for another rate cut and even price in a possible hike in late 2026.
Oil Prices Edge Lower
U.S. crude oil fell $1.20 to settle at $58.88 a barrel after Iraq restored output at an oil field responsible for about 0.5% of global supply. Brent crude declined $1.26 to close at $62.49.
