Will Powell join fellow fed members in endorsing a less hawkish stance?
at the Economic Club of New York on Thursday, where the focus will be on whether the Fed chief endorses recent remarks from fellow Fed members that an ongoing rise in Treasury yields could reduce the need for a final rate hike this year.
The surge in yields, which San Francisco Fed president Mary Daly recently suggested is equivalent to about one rate hike, would suggest that the risk of lifting rates too high and tipping the economy into recession is growing.At the most recent FOMC press conference in September, Powell flagged the risk of overtightening – or lifting rates too far above “sufficiently restrictive” levels – as an emerging concern.
“There appears to have been a coordinated attempt by Fed officials to signal more concern over the sharp move higher in U.S. yields which has contributed to a significant tightening in US financial conditions that is equivalent to one or two 25bps rate hikes by the Fed,” MUFG added. "If those higher long-term yields are higher because their expectations about what we're going to do has changed, then we might actually need to follow through in their expectations in order to maintain those yields,” Minneapolis Fed President Neel Kashkari said earlier this week.
While the potential risk of mid-November government shutdown could spark a fresh need for the Treasury to raise more cash, Powell could argue that the pace at which the Treasury is filling its confers will eventually slow, easing the supply pressures on U.S. government bonds that have pushed yields higher.Recent history would suggest that Powell isn’t likely to imply that the Fed could be done with rate hikes.
“This is the fifth consecutive quarter in which GDP growth has been blowing the barn doors off of consensus expectations with the median tracking for Q3 at 3% q/q SAAR,” Scotiabank Economics said in a note.
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