Oct 3, 2023 - Economy

Rates keep surging, but the Fed keeps quiet

Fed Chair Jerome Powell

Fed chair Jerome Powell speaks with Keith Forney, a Harley Davidson employee, during a roundtable event in York, Pennsylvania. Photo: Ryan Collerd/Bloomberg via Getty Images

We've noted several times recently that a remarkable rise in longer-term bond yields over the last few months is likely to put a damper on growth, pummel the housing market and strain America's fiscal situation. It hasn't let up so far in October.

Driving the news: The rates surge has continued this week, with the 10-year Treasury yield up to 4.78% at noon ET on Tuesday, up from 4.57% on Friday.

  • It is driven not by higher inflation expectations but by higher real, inflation-adjusted rates.
  • The yield on a five-year inflation-protected Treasury was 2.57% Tuesday morning. In its two-decade history, that security has only been higher briefly in 2007 and during the 2008 financial crisis.

The topic has been met with a deafening silence from top Federal Reserve officials. In the absence of any pushback, bond traders seem to assume that even the steep run-up in rates won't cause the central bank to back off its "higher-rates-for-longer" intentions.

  • In speeches Wednesday, for example, governor Michelle Bowman and vice chair for supervision Michael Barr did not mention the rates surge. Neither did chair Jerome Powell, in two public appearances over the last several days.

Yes, but: Bowman and Barr are more focused on bank regulation, so they usually would not be the officials to communicate a monetary policy message.

  • And Powell's events have been a roundtable with teachers and a meet-and-greet with ordinary Americans in Pennsylvania, not the venues where he would typically send a policy signal.

Go deeper: Our colleague Matt Phillips notes an important shift underneath the bond market's moves. Investors in longer-term Treasury bonds are now demanding a "term premium" that had been negative in the last couple of years.

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