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Powell says Fed ready to speed up hikes, take rates higher

Powell, who will appear in Congress again later in the day, signaled during Senate testimony on Tuesday that officials were ready to speed up the pace of tightening and take rates to higher levels if inflation remains hot. That’s sent short-end yields skyrocketing and prompted a shift higher in rate-hike bets.

The two-year Treasury yield rose as high as 5.08% in Asia as it hovered at levels last seen in mid 2007. The rate has now surpassed its 10-year equivalent by a full percentage point for the first time since 1981. 

This is playing out in a deeply inverted yield curve — a potential harbinger of recession.

Bloomberg 7 mars 2023


Federal Reserve Chair Jerome Powell 

This was the key line in his prepared testimony:

The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.

Perhaps it’s safe to interpret this as an abandonment of the belief, still in circulation on Feb. 1, that it was possible to bring inflation down to target without creating major job losses or a recession. 

Powell’s insistence on the Fed’s inflation target. 

He admitted that “the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.”

It’s back to the old debate of whether the Fed’s inflation target is at all attainable. To Solomon Tadesse of Société Générale, it isn’t. “Everyone is basically assuming that it’ll go down to that 2%, but really 2% is unattainable,” he said, adding that the target needs to be revised higher. 

Who’s Afraid of the Big Bad Inverted Yield Curve?

John Authers Bloomberg 8 mars 2023 



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