U.S. bond yields are near 5% after U.S. Federal Reserve Chair Jerome Powell said inflation is still too high and slower economic growth is needed to bring down elevated consumer prices.
In a speech to the Economic Club of New York, Powell said that the U.S. central bank would be resolute in its commitment to get inflation back down to its annualized 2% target.
“Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said in prepared remarks.
As Powell spoke, futures traders erased any possibility of a rate hike at either of the Fed’s two remaining meetings this year – on Nov.1 and Dec. 13.
The latest data has shown that inflation remains well above the central bank’s target rate, though it has come down to an annual rate of 3.7% from a peak of 9.2% in June 2022.
Stocks and the yield on the 10-year Treasury fluctuated wildly during Powell’s speech.
After initially turning positive, stocks ended the day in the red, with the blue-chip Dow Jones Industrial Average falling 250 points.
The 10-year Treasury yield is now near 5% as a selloff in the bond market continues. Bond yields move inversely to prices.
The U.S. Federal Reserve has raised interest rates 11 times since March 2022 for a total of 5.25 percentage points. The central bank’s Fed Funds Rate is now at its highest level in 22 years.
Powell said that the U.S. economy will likely need to slow substantially to bring inflation back down to the central bank’s 2% target.
“The record suggests that a sustainable return to our two per cent inflation goal is likely to require a period of below-trend growth and some further softening in labor market conditions,” said the Fed Chair.
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