Will Powell join fellow fed members in endorsing a less hawkish stance?
By Yasin Ebrahim
Investing.com — Federal Reserve chairman Jerome Powell is set to take center stage next week when he speaks at the Economic Club of New York on Thursday, where the focus will be on whether the Fed chief endorses recent remarks from fellow Fed members that an ongoing rise in Treasury yields could reduce the need for a final rate hike this year.
“In light of recent comments from other Fed officials, market participants will be watching closely to see if the leadership at the Fed share the same view that higher market rates if sustained will reduce the need for one final hike this year,” MUFG said in a note.
Since the Fed’s September meeting, the overarching narrative of ‘higher for longer’ rates has swept through markets, and put the bond market on course correction. A sharp selloff in Treasuries has pushed yields, particularly on the longer maturity 10-and 30-year bonds to 20-year highs.
The surge in yields, which San Francisco Fed president Mary Daly recently suggested is equivalent to about one rate hike, would suggest that the risk of lifting rates too high and tipping the economy into recession is growing.
At the most recent FOMC press conference in September, Powell flagged the risk of overtightening – or lifting rates too far above “sufficiently restrictive” levels – as an emerging concern.
Against this growing two-sided risk, the “commonsense thing to do,” Powell said, is to “move a little more slowly” on rate hikes as you approach sufficiently restrictive. With many at the Fed still arguing that the impact of the 11-rate hikes seen so far are yet to fully filter through the economy, the need to move more slowly on tightening appears to be on the up and up.
A caution approach toward monetary policy
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