Federal Reserve Chairman Jerome Powell and his colleagues might welcome the recent rise in bond yields rather than try to stamp out the fire, economists said.
Freshly-awake bond vigilantes are getting ready to ride into Jackson Hole next week to have some fun and scare the central bank folk.That could be how the Fed’s conference in Wyoming plays out this year, economists said.
Krishna Guha, vice chairman of Evercore ISI, agrees. “Our hunch is the Fed will try to avoid adding fuel to the fire in the hawkish direction,” he said in a note to clients. “I’m not of the view that they are thinking this is an inappropriate tightening of interest rates,” he said.The recent pickup in yields has actually brought the market into better alignment with the Fed’s thinking about rates over this year and next, Luzzetti pointed out.In July, the Fed raised its policy interest rate by 25 basis points to a range of 5.25%-5.5%. That move was the 11th hike of this cycle and brought rates to the highest level in 22 years.
These officials said that some softening in labor market conditions was needed to reduce upward inflation pressures.
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