Rising Treasury bond yields and home mortgage rates may reduce support at the U.S. Federal Reserve for additional interest rate increases, the prospect of which have already been ebbing on the basis of weaker inflation. The Fed raised interest rates at its July meeting by a quarter of a percentage point, to a range of between 5.25% and 5.5%, a widely anticipated move investors have construed as the central bank's last step in an aggressive 16-month rate hike campaign to slow inflation from 40-year highs. But bond yields since then have raced higher, with the interest rate on a 10-year U.S. Treasury security rising from around 3.86% the day of the Fed's July 26 rate decision to as high as 4.32% on Thursday.
FILE PHOTO: Traders react to Fed rate announcement on the floor of the NYSE in New YorkWASHINGTON - Rising Treasury bond yields and home mortgage rates may reduce support at the U.S. Federal Reserve for additional interest rate increases, the prospect of which have already been ebbing on the basis of weaker inflation.
Rates on a 30-year home mortgage in the U.S. rose to 7.09%, breaching the 7% level for the first time since November and marking a more than 20-year high. The recent climb in yields has been fast enough and surprising enough that "the Fed will be monitoring bond market developments - and the wider fall-out across asset markets - carefully," said Evercore ISI vice chair Krishna Guha.
Indeed, many Fed officials have puzzled over a recent easing of financial conditions, with equity markets rising and some home price indexes moving up despite the Fed's own rate increases and hawkish rhetoric that rates will stay high for as long as it takes to be sure inflation returns to the central bank's 2% target.
Overall economic growth also has continued to outperform expectations, with a strong July retail sales report the latest example of the economy's surprising strength - representing another conundrum for policymakers who both expect the economy to slow and feel it must for inflation to continue falling.
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