{"id":69226,"date":"2023-10-05T20:42:55","date_gmt":"2023-10-06T00:42:55","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/higher-bond-yields-could-stave-off-another-interest-rate-hike-fed-official-says\/"},"modified":"2023-10-05T20:42:59","modified_gmt":"2023-10-06T00:42:59","slug":"higher-bond-yields-could-stave-off-another-interest-rate-hike-fed-official-says","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=69226","title":{"rendered":"Higher Bond Yields Could Stave Off Another Interest Rate Hike, Fed Official Says"},"content":{"rendered":"

The Federal Reserve might not need to raise interest rates again this year, thanks to the recent rapid rise in U.S. bond yields, the president of the Federal Reserve Bank of San Francisco said Thursday.<\/p>\n

The yield on the 10-year Treasury shot up to a 52-week high of 4.801% earlier this week\u00a0on Tuesday. Through Wednesday\u2019s close, the 10-year yield has climbed 0.909 percentage points so far in 2023. <\/p>\n

\n

If the current economic conditions remain on track, the Fed could potentially avoid lifting interest rates further, as the climb in rates on long-term Treasuries is largely doing the central bank\u2019s job for it, Mary Daly, the San Francisco Fed president, said Thursday in an appearance at the Economic Club of New York.\u00a0The Fed\u2019s aggressive battle to tame inflation since last year has brought its benchmark interest rate to the current 5.25% to 5.5% level. <\/p>\n

\u201cIf we continue to see a cooling labor market and inflation heading back to our target, we can hold interest rates steady and let the effects of policy continue to work,\u201d said Daly, who is currently a nonvoting member of the Federal Open Market Committee, but will be a voting member next year. <\/p>\n

In August, the headline consumer price index rose 3.7% from a year earlier, accelerating slightly from July\u2019s 3.2% pace, but down significantly from the June 2022 peak above 9%. The central bank maintains a target inflation rate of 2%. <\/p>\n

Financial conditions, in particular, have tightened considerably in the past 90 days, Daly noted. <\/p>\n

\u201cIf they should remain tight, well then the need for us to take further action is diminished because financial markets are already moving in that direction and they\u2019ve done the work\u2014we don\u2019t need to do it more,\u201d she said.<\/p>\n

When asked if that means, if all things being equal, the Fed won\u2019t need to hike again if bond yields stay where they are, Daly said that\u2019s exactly how she thinks about it.\u00a0<\/p>\n

The bond market has tightened \u201cquite considerably,\u201d Daly explained, noting that the 10-year Treasury\u2019s yield has risen more than 36 basis points since the Federal Open Market Committee met in September. \u201cThat is equivalent to about a rate hike,\u201d she said.\u00a0<\/p>\n

\u201cWe\u2019ve done a lot in a short time and the economy\u00a0is in a better place,\u201d Daly said. But she cautioned \u201cI would argue that we\u2019re now entering into the hardest phases of policy-making.\u201d<\/p>\n

The FOMC is committed to keeping rates \u201chigher for longer\u201d in an effort to bring inflation fully back down to 2%, Daly said. She sees the tightening financial conditions as a positive outcome, because then Fed officials can really get the job done and put inflation in line with the bank\u2019s goal. Daly added that she believes that monetary policy is \u201cwell into\u201d restrictive territory at this point, echoing a sentiment that Michael Barr, the Fed\u2019s vice chair for supervision, expressed earlier this week.<\/p>\n

\u201cI think it is likely that we are at, or very near to, the level that is sufficiently restrictive to bring inflation back to 2%,\u201d Barr said Monday. \u201cThe most important question now is not so much whether we need to make an additional hike at the next meeting or the meeting after\u2014the most important question is what is the extent of restrictiveness that is required over what time period.\u201d<\/p>\n

But there are still risks\u2014particularly that the Fed\u2019s progress reining in inflation could plateau, Daly said. <\/p>\n

\u201cThe economy still has considerable momentum, and we\u2019re a long way from 2% on inflation and a long way from a sustainable pace on job growth,\u201d Daly warned. \u201cSo, those things both are saying that we still have a ways to go, and they could stall out, because we have so much momentum.\u201d<\/p>\n

While there has been some cooling in the labor market in recent months, Daly noted that job growth remains well above what is needed to keep pace with overall labor force growth. Over the past three months, gains in payrolls averaged 150,000 jobs a month.<\/p>\n

There are, however, \u201clong and variable lags\u201d in regards to Fed rate hikes affecting the economy, and Daly said the U.S. is still seeing the effects of that.\u00a0<\/p>\n

Inflation is also still almost 2 percentage points higher than the Fed\u2019s target on a 12-month basis. While it\u2019s possible that the slowing pace of price growth will translate into a steady march toward the Fed\u2019s goal, the last mile of that process could prove challenging, Daly acknowledged.\u00a0<\/p>\n

\u201cMany components of inflation are coming down just as we would expect,\u201d Daly said. But inflation in non-housing core services, often called \u201csupercore\u201d inflation, has been relatively sticky and remains far above its prepandemic level, Daly noted. \u201cThis type of inflation, this supercore, often lags recovery in the other sectors\u2014so there\u2019s not a reason to worry yet. But we will need to see some progress in this category to be fully confident that we are on the path back to price stability.\u201d<\/p>\n

Speaking to the Fed\u2019s slightly more hawkish tone of late, Daly said when you don\u2019t know exactly what will be needed, \u201cit\u2019s not actually a terrific idea to telegraph one thing over the other\u201d in forward guidance. \u201cThat\u2019s why this tolerance of uncertainty is so important. The forward guidance doesn\u2019t go away, but it gets less precise on a meeting by meeting basis,\u201d she said.\u00a0<\/p>\n

Progress isn\u2019t victory, Daly warned, and said both the Fed and the public must remain resolute to finish the job. \u201cA gradual return to 2% is in our sights, but it is not yet in our grasp. And that is the final mile.\u201d\u00a0<\/p>\n

Write to Megan Leonhardt at megan.leonhardt@barrons.com<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The Federal Reserve might not need to raise interest rates again this year, thanks to the recent rapid rise in U.S. bond yields, the president of the Federal Reserve Bank of San Francisco said Thursday. The yield on the 10-year Treasury shot up to a 52-week high of 4.801% earlier this week\u00a0on Tuesday. Through Wednesday\u2019s […]<\/p>\n","protected":false},"author":1,"featured_media":69227,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-69226","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nHigher Bond Yields Could Stave Off Another Interest Rate Hike, Fed Official Says | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The Federal Reserve might not need to raise interest rates again this year, thanks to the recent rapid rise in U.S. bond yields, the president of the\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=69226\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta 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