With the recent Fed testimony, Federal Reserve Chairman Jerome Powell assured lawmakers about their plans to bring down inflation. Not only does Fed Chair Jerome Powell seek to avoid a recession, he believes the Federal Reserve has the tools to do so.
Comments from the Latest Fed Testimony
“[The Federal Reserve] understands the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,” Powell said in his testimony to the Senate Banking Committee. “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.
Along with his thoughts on inflation, Powell expressed favorable thoughts on the economy as a whole. In fact, Powell cited a strong labor market and high demand as positive signs moving forward. Notably, Powell expressed these thoughts to worried committee members like Senator Elizabeth Warren who warned of tipping the economy into a recession through interest rate hikes.
However, Powell mentioned the possibility of a recession. That said, he continues his belief that the economy remains in strong standing.
Treasury Yields Fall in Response to Fed Testimony
As Powell made his remarks during the latest Fed testimony, 10-Year Treasury Yields dropped 14.9 basis points. Holistically, this marks the biggest drop since November 2021. Meanwhile, 2-Year Treasury Yields fell 14 points. Finally, 30-Year Treasury Yields declined 14.7.
Despite the recent drop, Treasury Yields rose in 2022. Analysts attribute the rise in yields toward a direct response of the soaring inflation figures. Thus, the Federal Reserve rose interest rates. Now, the rise in interest rates strikes fear with the looming possibility of a recession.
After the Federal Reserve raised the federal funds rate by 75 basis points, the bond market experienced a particularly rough day. The latest move went against former remarks from Powell doubting the possibility of a move of this size. In addition, the rise reflects a bad sign to traders and economists hoping for a stronger bounce back.
What Awaits the Rest of 2022?
After the Fed testimony, economists continue to monitor the ever-changing behavior of the markets. As the United States economy bounces back from the highs and lows of the pandemic era, the Federal Reserve anticipates further hikes to the federal funds rate. While Powell claims to be in control of the next moves, analysts and investors anxiously await the remainder of the year, and the mortgage market heads into unprecedented territory.
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