Treasury bond yields continued rising as Federal Reserve chairman Jerome Powell signaled the central bank would hold interest rates steady at its next policy meeting. But before declaring victory over inflation, he cautioned “there may still be meaningful tightening in the pipeline.”
The 10-year Treasury yield neared 5% for the first time in 16 years, while the 30-year yield hit 5.1%. Yields have now risen for four straight days.
Lorie Logan, president of the Federal Reserve Bank of Dallas and a member of the rate-setting committee, said earlier in October that “there may be less need to raise the Fed funds rate” if long-term bond interest rates remain elevated.
What will the Fed do next?
Powell, in a speech to the Economic Club of New York on Oct. 19, said he is satisfied that the Fed’s current policy is restrictive enough to continue the “downward pressure on economic activity and inflation.”
Yet, the Fed is wary of a resilient economy and demand for labor. “Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” cautioned Powell.
Economic growth needs to be “below-trend” and the labor market needs to soften for inflation to continue to come down, Powell suggested. But the unusual outcome thus far of falling inflation not spurring higher unemployment is a “highly welcome development,” he said.
Mortgage rates keep rising
Mortgage rates continued to notch higher, meanwhile, with the average 30-year mortgage rate in the US at 7.63% and the 15-year rate at 6.92%, according to Freddie Mac.
With higher mortgage rates, home sales dipped in September, marking the fourth month in a row of declines.