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Investing.com – Two US officials on Thursday welcomed a rally in bond yields as something that could complement the US central bank’s work to slow the economy and return inflation to its 2% target, while also noting that they see a good chance of no new rate hikes.
The policymakers — Philadelphia Fed President Patrick Harker and Boston Fed President Susan Collins — spoke in separate interviews. As they set out their forecasts for monetary policy and the economy, Harker and Collins also assess what the jump in bond yields means for the central bank’s mission to slow economic activity to bring down inflation.
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The rise in bond yields.. what does it indicate?
Harker said in an interview on “CNBC” that the rise in long-term borrowing costs, i.e. 10-year bonds, “helps calm the economy.” Where he said the jump wasn’t a big concern but it was something he had his eye on.
Meanwhile, Collins Ali told Yahoo Finance that the rise in bond yields “fits perfectly” with the broader story around the economy and monetary policy. “I think it helps that higher longer rates are consistent with the understanding that this will take some time on the Fed’s part to bring inflation back to the 2% target,” she added.
Harker and Collins spoke before the official start of the Fed’s Jackson Hole conference, which will feature an expected speech on the economic outlook by Fed Chair Jerome Powell.
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The Fed, which has pushed short-term interest rates aggressively higher since March 2022 to curb the worst spike in inflation in decades, raised the rate to a range of 5.25%-5.50% at its policy meeting last month. Fed officials still believe that inflation is too high, while noting that its moderation has opened the door to ending the cycle of rate hikes. The financial markets are currently skeptical that the US central bank will raise interest rates again at its September 19-20 meeting.
The question of the need for further rate hikes has been largely driven by the resilience of financial markets and the macro economy in the face of restrictive monetary policy. In the face of rising interest rates, the unemployment rate remained low and economic growth was strong, even as sectors such as housing were hit hard by higher borrowing costs.
The state of the economy indicated that the Fed may have to do more with monetary policy, while the jump in long-term borrowing costs, which is constraining activity, takes some pressure off the central bank.
Since settling at around 3.84% at the start of 2023, the 10-year yield has increased significantly since mid-July and stood at around 4.23% in early Thursday afternoon trade.
future interest rates
In their interviews on Thursday, Harker and Collins argued against the need for further interest rate increases.
“Right now I think we’ve probably done enough,” Harker said, and it might be a good idea to keep interest rates at those levels for the rest of this year and see how that affects the economy.
On the other hand, Collins kept the door open for further interest increases but did not call for them.
“We may not raise interest rates further, but further increases are certainly possible, and we need to look comprehensively and really be patient for the time being and not try to outpace what the data is going to tell us,” Collins said.
Harker sees inflation falling to 4% this year, 3% next year, back to the central bank’s target of 2% in 2025, and expects the unemployment rate, which was at 3.5% in July, to rise to 4% or possibly higher. While he believes that economic growth will be moderate.
2023-08-25 07:59:00
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