Right now, the Federal Reserve’s judgment is being put to the test and if critics claim downplaying inflation to support employment will weaken the economy. In a climate marked by rising yields and market volatility, questions arise about the Fed’s ability to manage inflation effectively. Tempers are flaring, with some analysts sounding the alarm about increasing discontent within the ranks of the Fed. Some forecast that number could be as high as three members adamantly opposed to any interest rate cuts.
In something of a surprise move, the yield on the 10-year Treasury note just had its most significant and sudden increase in almost a year. Like as of 7 PM half an hour ago with the yield hitting 4.168%. This was up from 4.158% at 7 AM the same day. This is a large and unprecedented move considering Friday morning’s yield of 4.112%. This is clearly a dramatic about face in investor sentiment. Just under a month ago, back on November 27, the yield had fallen to a recent low of 3.990%.
High yields are usually positive for the dollar, which would be a boon for investors looking for safe haven in a panicked market. Investors will watch closely when the US Treasury brings $39 billion of 10-year Treasury notes to auction. They’re simply scrambling after the wave of market changes post-pandemic.
Critics of the Fed have decried the move, warning that it signals the central bank’s failure to rein in inflation. This admission comes at a time when former President Donald Trump has publicly criticized Fed Chair Jerome Powell, stating, “I think he’s a combination of not a smart person and doesn’t like Trump.” Trump indicated that he would evaluate any new Fed chair based on their immediate actions regarding interest rate cuts, implying that he believes current policies are insufficient.
The Job Openings and Labor Turnover Survey (JOLTS) report will be out soon with new numbers on job openings and voluntary quits. This new information will contribute to the existing complexity of the market. Analysts are ever eager and expectant to peruse this report for clues on resuming employment liquidity supporting the Fed’s next tapering decision.
The market turmoil reflects a broader concern about economic stability and the Fed’s role in navigating these challenges. The rising yields and shifting expectations regarding interest rates signify a growing tension between the goals of sustaining employment and controlling inflation.