US yields rise as Fed’s Powell tone remains aggressive

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Short-term U.S. Treasury yields rose on Thursday after Federal Reserve Chairman Jerome Powell reiterated that the entity’s priority is tackling inflation, before the consumer price report is released next week.

  • Powell said the Fed is “strongly committed” to reining in inflation, but hopes it can be done without “very high social costs.”
  • “It was consistent with his comments from Jackson Hole: the need to raise rates further to bring down inflation. That was really the core of the message,” said Gennadiy Goldberg of TD Securities in New York.
  • Chicago Fed President Charles Evans also said Thursday that bringing down high inflation is “the first task,” and to that end the Fed “could very well” raise interest rates another 75 basis points this month.
  • Fed policymakers are now due to enter a quiet period ahead of their September 20-21 meeting, where they are expected to raise rates another 75 basis points, raising the federal funds rate to between 3 .0% and 3.25%.
  • On Thursday, the European Central Bank raised rates by an unprecedented 75 basis points and signaled further hikes, prioritizing fighting inflation even as the bloc’s economy heads toward a likely recession. in winter.
  • The benchmark 10-year note yield rose 3 basis points to 3.292%, above the four-month low hit on August 2, at 2.516%, but still below the 11-year high hit on June 14, at 3.498%.
  • The yield on two-year paper gained 4 basis points to 3.491%, down from 3.551% reached last Thursday, which was the highest since November 2007.
  • The yield curve between 2-year and 10-year bonds remained inverted at -20 basis points, an indicator that a recession is likely in the next year or two. However, the reversal is less severe than the level of -56 basis points reached on August 10.
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