Top Federal Reserve officials are coalescing around the idea that tighter financial conditions after a recent surge in US Treasury yields may substitute for additional increases in their benchmark interest rate.
Fed Vice Chair Philip Jefferson on Monday told a conference that he would “remain cognizant of the tightening in financial conditions through higher bond yields” in assessing “the future path of policy,” echoing similar comments from other policymakers in recent days.
Yields on 10-year Treasury securities have risen about 40 basis points since the Fed’s Sept. 19-20 policy meeting — to 4.8% as of Friday’s close. Projections published after the meeting showed most officials expected one more rate hike this year — and fewer cuts next year — would be needed to return inflation to 2%.
“Jefferson has basically just told you that not only is the Fed on hold, but that they have to take into consideration that higher long rates are starting to slow down the economy,” said Andrew Brenner, head of international fixed income at NatAlliance Securities LLC. Still, inflation has come down this year, and forecasters generally expect a monthly BLS report on consumer prices due Oct. 12 to show it decelerated further in September, according to a Bloomberg survey.
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