Jumping yields, slumping stocks may boost case for a Fed pause
By Howard Schneider
WASHINGTON (Reuters) — Rising Treasury bond yields and home mortgage rates may reduce support at the U.S. Federal Reserve for additional interest rate increases, the prospect of which have already been ebbing on the basis of weaker inflation.
The Fed raised interest rates at its July meeting by a quarter of a percentage point, to a range of between 5.25% and 5.5%, a widely anticipated move investors have construed as the central bank's last step in an aggressive 16-month rate hike campaign to slow inflation from 40-year highs.
But bond yields since then have raced higher, with the interest rate on a 10-year U.S. Treasury security rising from around 3.86% the day of the Fed's July 26 rate decision to as high as 4.32% on Thursday.
Rates on a 30-year home mortgage in the U.S. rose to 7.09%, breaching the 7% level for the first time since November and marking a more than 20-year high.
Stock markets — which can offer investors higher returns but also higher risk versus less volatile assets like Treasury bonds — have declined, with the S&P 500 reversing a five-month climb to fall about 2.6% since the Fed's last meeting.
Investors in contracts tied to the Fed's benchmark interest rate added to bets that it will move no higher, a view shared by 99 of 110 economists polled by Reuters this week who also see the risk of a U.S. recession in decline.
The recent climb in yields has been fast enough and surprising enough that «the Fed will be monitoring bond market developments — and the wider fall-out across asset markets — carefully,» said Evercore ISI vice chair Krishna Guha.
The Fed watches an array of asset prices in its monitoring of the economy, including stocks, home prices, and corporate bonds.
«A rise
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