Interest rates are headed lower — real yields suggest a half-point Fed cut is coming

Mark Hulbert argues that market signals — notably elevated U.S. Treasury real yields — point to lower interest rates in the months ahead. Real yields are at their highest since 2008, and estimates of the natural rate (r-star) from the HLW model stood at 0.92% at end-2025, below the inflation-adjusted fed-funds rate. Hulbert calculates the current real fed-funds rate at roughly 1.3% (3.7% nominal minus 2.4% CPI), or 1.4% using Cleveland Fed expected inflation, implying short-term rates are about 0.5 percentage point too restrictive. He concludes a half-point Fed cut is a reasonable near-term prospect once geopolitical uncertainty abates — a development likely to ease financial conditions and support risk assets.