US Treasury yields at Powell’s suggestion

Treasury yields rose on Friday after the president of the Federal Reserve, Jerome Powellsaid the central bank may have to raise interest rates further to ensure inflation stays within the 2% target.

Powell’s remarks at the Fed’s annual symposium in Jackson Hole, Wyoming, balanced an outlook based on the slowing pace of price increases over the past year with the surprising strength of the US economy.

In addition, he said that inflation is still too high and that the Fed is willing to keep monetary policy tight until his authorities are sure that the pace of price increases is on a sustainable path “towards our target.” .

Joe LaVorgna, chief economist for USA of SMBC Nikko Securities in New York, said the message was rather restrictive and did not suggest a rate cut was likely in the near future. “While they are talking about risk management, I don’t see anything to suggest they are going to cut rates any time soon,” said.

Powell is “Looking for the flexibility to go higher, not necessarily buying the flexibility to relax. It seems to me that it is between going higher and waiting instead of, ‘OK we are more or less where we need to be and monetary policy is symmetrical’”.

The performance of the Treasury bond The 10-year yield rose 2.2 basis points to 4.257%, and the two-year return, which reflects interest rate expectations, rose 5.7 basis points to slightly above the key 5% threshold at 5.076%.

The market would like to know how long it will take Federal Reserve to declare victory in the battle to tame inflation and start cutting interest rates.

Price expectations are anchored and real rates are positive, LaVorgna said, and his research shows that inflation behaves as it did after World War II.

“The inflation spike of the 1940s was mainly the result of a massive decline in aggregate supply, just like what happened during the COVID-19 pandemic.”said in a note after the intervention of Powell. “So inflation might be transitory after all.”