U.S. government debt yields fell Wednesday even after the Federal Reserve decided to hike interest rates for the third time in 2018.
Rates dropped late in the session after Fed Chair Jerome Powell said he does not see a buildup in fundamental inflation and does not anticipate prices surprising to the upside.
"The main thing where we might need to move along a little bit quicker if inflation surprises to the upside. We don't see that," Powell told reporters during his quarterly news conference Wednesday.
The Federal Open Market Committee concluded its September monetary policy meeting Wednesday with a decision to hike the federal funds rate by one quarter-point.
The hike pushes the funds target range to 2 percent to 2.25 percent, where it last was more than 10 years ago.
Despite the rate hike, the yield on the benchmark 10-year Treasury note was lower at around 3.05 percent at 4:29 p.m. ET, while the yield on the 30-year Treasury bond was also lower at 3.183 percent. Bond yields move inversely to prices.
Fed members also decided to drop language saying that "the stance of monetary policy remains accommodative."
Some traders interpreted the change in language to mean that since the Fed no longer believes its policy is accommodative, it's likely closer to being done with regular rate hikes.
"It's a dovish statement because it dropped reference to accommodative policy," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group. "Because you're no longer accommodative there's no preset path of hikes and every decision becomes a toss-up."
"The change does not signal any change in the likely path of policy," Powell told reporters. "Instead it is a sign that policy is proceeding in line with our expectations."
J.P. Morgan chief economist Mike Feroli said he believes that Fed officials removed the term to help reflect the gradual shift back to normal levels of interest rates.
"The removal of the phrase 'accommodative' was something we expected," Feroli said. "Some people want to read it as dovish, but it's tough for me to interpret that way because the dots are looking for more hikes. I see it more of as way to normalize communications."
Markets had been watching closely to see whether the Fed would ditch the language, which was originally introduced years ago as the central bank lowered rates in an attempt to help pull the economy out of the financial crisis.
"You want to ditch [accommodative] at some point; it's really a residual from when they were on the zero lower bound," he added. "I think they're just trying to be honest about it. Now that you're at 2 percent, it might be time to say you're getting back to normal."