U.S. Treasury yields rose on Thursday, reflecting investor reactions to Federal Reserve Chair Jerome Powell’s recent comments regarding inflation and economic growth. At 3:55 a.m. ET, the benchmark 10-year Treasury yield increased approximately four basis points to 4.319%. The national economy is still processing the impact of President Donald Trump’s trade tariffs. This culmination of events is fomenting deepening confusion and worry about the state of the U.S. economy.
Powell addressed the challenging dynamics facing the Fed, stating that it could find itself in a “sticky dilemma” of managing inflation while supporting economic growth. More concerning, he said, was the risk of increasing inflation this time next year and the opposite forecast for lower growth. These comments have sent shockwaves through the analyst community, including at Deutsche Bank. They insinuate that Powell seems like he’s in no rush to address the new economic headwinds immediately.
“His comments added to the sense that the Fed wouldn’t be in a rush to react to the weaker surveys of recent weeks,” – Deutsche Bank analysts.
Wall Street investors—and all Americans—are highly attuned to what’s happening with the U.S. economy. FOMC participants have been specifically looking forward to some major economic indicators coming out this Thursday, such as the most recent housing numbers and weekly initial jobless claims. Powell continued to focus on the fact that the markets are orderly though still in a high uncertainty state. In addition, he thinks that it’s premature to call for Federal Reserve intervention now.
Powell stressed that if the economic landscape begins shifting drastically as we move forward, the Fed will assess the degree to which the economy diverges from its dual-mandate targets. They’ll be looking at different time horizons for closing these gaps. He articulated this perspective succinctly, stating, “If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”
This rapidly rising yields are upending the current state of play. Smart investors are recalibrating their expectations after what they have heard from Powell. As they navigate this complex landscape, many will be focused on upcoming economic data that could further inform the Fed’s policy direction.