U.S. Treasury yields hit their highest level since June on Wednesday after hawkish comments from Minneapolis Federal Reserve Bank President Neel Kashkari.
The 2-year U.S. Treasury yield climbed 5.1 basis points to 3.384 percent on Wednesday, the highest since June 14.10-Year U.S. Treasury YieldIt rose 5.2 basis points to 3.105% from 3.053% on Tuesday, the highest since June 28. The 30-year U.S. Treasury yield rose 6.5 basis points to 3.320% from 3.255% on Tuesday, its highest level since June 21.
Kashkari said on Tuesday that the Federal Reserve (Fed) needs to continue to tighten monetary policy until inflation falls significantly. He said that when inflation hits 8% or 9%, inflation expectations run the risk of getting out of hand, and if that happens, the Fed may have to start raising rates very aggressively.
Steve Englander, a foreign exchange strategist at Standard Chartered Bank, believes that despite the recent spate of hawkish comments from Fed officials, medium-term inflation expectations have been rising sharply, indicating that the market has become pessimistic about the Fed’s ability to achieve its inflation target.
As of Wednesday, traders were pricing in a 60.5 percent chance of another three-point rate hike in September, with the Fed expected to raise its target for the federal funds rate to 2.5 percent next month from the current 2.25 percent, according to CME’s FedWatch tool. to between 3% and 3.25%.
The annual meeting of global central banks will be held Thursday through Saturday in the U.S. resort town of Jackson Hole, Wyoming, and Federal Reserve Chairman Jerome Powell will speak on Friday.
Some analysts think Powell is likely to stress that the Fed is still aware of the inflation problem and needs to see more clear evidence of a pullback in inflation, although some, including JPMorgan analyst Phil Camporeale, question the Fed as being unreasonable. Hawks.
Armoury Capital CEO Nick Tell said: “Powell’s speech on Friday will be in order, in other words, he will not provide specific forward guidance on a rate hike in September, but will reiterate that the Fed’s action will depend on economic data. So. , I expect the stock and bond markets to remain volatile as investors continue to speculate on the Fed’s policy direction.”