Wall Street investors will be listening to Federal Reserve Board Chairman Jerome Powell’s speech for any sign or clarification on interest rates following a Fed policy meeting in September that outlined a strategy to combat inflation by keeping higher interest rates in place a while longer in an effort to sustain the economy’s upward trajectory. File Photo by Ken Cedeno/UPI | License Photo
Federal Reserve Chairman Jerome Powell will deliver remarks in New York Thursday as part of a closely watched forum that may provide clues about the Central Bank’s next move on interest rates amid high inflation.
Powell was set to speak beginning at 12 p.m. EDT as part of a fiscal discussion at the Economic Club of New York, although there was no early indication of what he would say or if he would broach the subject of interest rates at all. Advertisement
Investors will be listening for any sign or clarification on interest rates following a Fed policy meeting in September that outlined a strategy to combat inflation by keeping higher interest rates in place a while longer in an effort to sustain the economy’s upward trajectory.
Powell’s speech comes at a critical time, as financial markets were expecting a reprieve on rate hikes ahead of the next Fed meeting on Oct. 31, and as yields were booming on the 10-year Treasury bond note.
The yield index rose by 6 basis points to 4.96% on Wednesday, following a four-day rally that pushed the rate closer to the yield’s 5% peak for the first time since 2007. Advertisement
The 2-year Treasury yield also ticked up 2 basis points to 5.23% on Wednesday.
Yields were rising mostly due to concerns the Fed would move benchmark rates even higher or leave them in place longer in hopes of knocking out inflation in the near term.
Economists also point to rising yields due to factors like a robust economy, strong job market, higher government deficits, and an elevated term premium — which represents the cash cushion investors require as insurance against potential interest rate changes over the life of a bond.
The bond market bottomed out at 0.5% in 2020 as investors fled to risk-free Treasuries during the global pandemic.
In recent months, however, the yields resurged, prompting investors to recalibrate trading prices through 2024 in anticipation of the Federal Reserve’s continued interest rate hikes, coinciding with the recovery of industries since the national health emergency ended in May.
Powell’s statement could serve to either shake up or reassure the current yield market ahead of the next policy decision by the nation’s Central Bank.
Other Fed policymakers have recently indicated their support for keeping current interest rates intact for as long as inflation remains a concern, while also acknowledging the negative impact of surging Treasury yields, which create a drag on the economy. Advertisement
Earlier this month, Fed Vice Chair Philip Jefferson laid out that strategy that would see the Fed “balance the risk of not having tightened enough, against the risk of policy being too restrictive,” he said.
In a separate statement, San Francisco Fed President Mary Daly added: “If 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. Importantly, even if we hold rates where they are today, policy will grow increasingly restrictive as inflation — and inflation expectations — fall.
