US Treasuries Rally as Oil Cools and Confidence in Fed's Warsh Grows

US stocks and Treasury bonds rallied together on Thursday, September 17, a day after the Federal Reserve raised interest rates for the first time in three years, as falling oil prices and growing investor confidence in Fed Chair Kevin Warsh combined to lift risk appetite.

How Stocks Closed

The S&P 500 closed higher by 1.1%, while the Nasdaq Composite surged 1.7%. The Dow Jones Industrial Average rose 316 points, or 0.6%, and the Russell 2000, which tracks small and midsize companies, ended up 0.5%. Gains were broad, with nine of the S&P 500's 11 sectors closing in the green, though the advance was overwhelmingly driven by big jumps in tech shares including Nvidia, Amazon, Microsoft, Intel, and AMD.

How Treasury Yields Moved

The 10-year Treasury yield declined 8 basis points to 4.95%, halting an eight-session climb. Two- and five-year yields also pulled back from the multiyear highs they'd set Wednesday immediately following the Fed's decision — though short-dated yields remained elevated overall, with the 2-year yield touching 4.73%, its highest level since 2024.

Why Warsh's Press Conference Mattered So Much

Market optimism was boosted specifically by renewed confidence in the Fed and its chairman. After Warsh's earlier speeches and statements had sent bond yields soaring to multidecade highs while leaving investors confused about his intentions, his Wednesday press conference drew widespread praise for its clarity. Evercore ISI vice chairman Krishna Guha wrote: "Warsh's press conference was coherent, confident and consistently hawkish without coming across as crazily so." ABN-AMRO economist Rogier Quaedvlieg added: "The Warsh Fed defied the Trump administration and preserved its credibility by following through on earlier signals" that it would hike rates. A strategist at Northlight Asset Management similarly wrote that Warsh "threaded the needle very well."

How the Fed Got "Boxed In"

CNN's analysis offered useful context on how the central bank arrived at this point: Warsh had talked tough on inflation for months without backing it up with action, which raised fears the Fed had lost credibility — market shorthand for trust that the central bank will actually follow through on its dual mandate. Bond investors grew nervous that an inactive Fed might fall behind on inflation, demanding even higher yields as oil crept above $100 a barrel while Warsh remained largely silent. That dynamic pushed the benchmark 10-year yield to a 19-year high on Tuesday, effectively daring the Fed into action. Chris Zaccarelli, chief investment officer for Northlight Asset Management, summarized it bluntly: "The Fed was boxed into a corner." CNN's own framing was even sharper: "The bond market is the ultimate bully."

Oil's Role in the Rally

The stock and bond rally was reinforced by a second straight day of falling oil prices, as reports of Saudi Arabia's pipeline recovery progress eased fears of a prolonged Middle East supply disruption. Lower oil prices reduce near-term inflation pressure, giving both equity and bond investors additional reason for optimism beyond the Fed's improved communication alone.

A Global Bond Rally

The Treasury rally wasn't isolated to the US: strength in UK government bonds drove long-maturity gilt yields lower by more than 10 basis points, adding an additional global tailwind to the Treasury rally. The Bank of England, for its part, kept its own interest rates on hold Thursday but warned rates might need to rise if the Iran war drags on, while projecting British inflation would top 4% early next year.

What This Means for a Pending Bond Auction

The Treasury rally trimmed the expected yield for a 1 p.m. New York auction of 10-year TIPS (Treasury Inflation-Protected Securities) that same day, though it remained on track to deliver the highest auction yield since 2008, with 10-year TIPS yields sitting around 2.64% ahead of the sale. The prior 10-year TIPS auction in July had cleared at 2.438%, the highest since October 2008 — a period marked by severe financial crisis-era strains — underscoring just how elevated real yields have climbed even amid Thursday's broader relief rally.

Still Uncertain Path Ahead

Despite Thursday's relief, Reuters' Trading Day column cautioned that continued uncertainty about how far the Fed will raise rates to keep prices in check is likely to cause further volatility for stocks and bonds in the coming weeks. The column also noted a symbolic shift: with Wednesday's hike, Warsh effectively became — in the eyes of the White House that appointed him — akin to his predecessor Jerome Powell, given that the rate increase directly contradicts Trump's repeated calls for rates as low as "1%, or less." The administration's campaign against Fed independence is expected to intensify as a result.

What's Next

With Fed officials' updated dot plot pointing toward at least one and possibly two more hikes extending into 2027, and continued volatility in both oil markets and US-Fed-White House relations, Thursday's rally may prove more of a temporary reprieve than a durable shift in market direction. For continuing market coverage, see the full NBC News report.