Thursday, August 11, 2022

Fed officials dove cold water again on the Fed’s switch, and the bond market is terrified.

Several Federal Reserve officials said they are determined and “completely united” to raise US interest rates to levels that will hit the worst inflation curbs in 40 years, in effect last week’s financial markets decision. The idea that the authorities are tossing a bucket of cold water imagining slowing down the pace of penance.

The presidents of the three regional Federal Reserve banks, in their talks on the 2nd, emphasized that inflation is currently showing no signs of slowing down. San Francisco Fed President Mary Daly said “we are determined and fully united” to bring inflation back to the 2 percent inflation target.

Daly also said that bond market prices reflect investor expectations that the Fed will cut interest rates in the first half of next year, which makes him “confused.” Daly expects the Fed to continuerate increase, and maintain interest rates “for a while”. This comment added to the selling pressure in the interest rate futures market.

In addition to Daly, similar flamboyant conversations by Cleveland Fed Chair Loretta Meester and Chicago Fed Chair Charles Evans also boosted TreasuryyieldOn the 2nd, the 2-year Treasury yield rose 20 basis points, prompting traders to reconsider how much the Fed will raise interest rates in the future and whether it will cut interest rates in early 2023. . Fed ChairmanballIt said on Wednesday that “a slower pace of rate hikes may be justified” as the Fed tightens its stance, allowing the U.S. Treasury yields have declined.

Meester said at a Washington Post live event that she would like to see “very compelling evidence” of month-on-month price increases before claiming that the US central bank’s tight cycle is hitting its inflation target. Evans told reporters that policymakers believe it may take at least two reports to see an improvement in inflation data and to reinforce their view that monetary tightening is on track.

Data showed US gross domestic product (GDP) shrank for two straight quarters, slipping into a technical recession when the Federal Reserve raised interest rates by three yards last week. Powell said in a press conference after the meeting that similar rate hikes may be possible at the next meeting (20-21 September), depending on the data between now and then, although at some point in the future. , the rate hike will slow down. motion.

“I’d really like to see the data before deciding whether to slow down the pace of rate hikes a little bit, or continue to increase rates significantly,” Daly said.

Evans said he wants two rate hikes in September and one each in November and December to bring the federal funds rate down to 3.5 percent by the end of the year, a rate path he sees as “still. reasonable.” But if inflation shows no signs of improvement, the Fed “might have to rethink the higher rate path a little bit, but I’m a little worried about overexertion too soon.”

Separately, St. Louis Fed Chairman James Bullard said the same day that the Fed had no money to slow inflation and the U.S. economy. There might be a way to achieve a “soft landing” without triggering a deceleration.

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