PrefBlog

Excitement in the bond market today, which I have seen attributed to San Francisco Fed President Mary Daly’s remarks:

The Federal Reserve’s work of bringing down inflation is “nowhere near” almost done, San Francisco Fed President Mary Daly said on Tuesday, adding U.S. central bank officials are “still resolute and completely united” in the task of achieving price stability.

Daly, in an interview streamed on LinkedIn and hosted by a CNBC anchor, said, “We have made a good start, and I feel really pleased with where we’ve gotten to by this point,” but she cautioned there is still “a long way to go” to lower inflation from four-decade highs.

These remarks, in turn, have been attributed to correcting an earlier misinterpretation:

Look at this one-week range for the yield on 2-year US government bonds.

These are substantial moves for a short-dated maturity and caused primarily by Fed Chair Powell’s unscripted “neutral” remark and then the walk-back by other Fed officials.

No wonder people chuckled when told the Fed doesn’t wish to amplify volatility in markets.

And the confusion arose because:

One of Federal Reserve Chair Jerome Powell’s unscripted remarks at his press conference on Wednesday — that interest rates have reached a “neutral level” after the just-announced 75-basis-point interest-rate increase — is sure to prompt much discussion among economists in the weeks and months ahead. Judging from how markets reacted the minute he made this remark, it is clear what conclusions the vast majority of investors want these economists to reach.
…
In today’s world, this is translated by markets into the view that the Fed now believes that it has already done the bulk of what is needed to tighten monetary policy to deal with what Powell himself described as inflation that remains “much too high” and is inflicting “considerable hardship” on Americans.

This entry was posted on Tuesday, August 2nd, 2022 at 10:25 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.