The Yahoo Finance Live team discusses Fed Chair Powell's speech suggesting a pause in rate hikes, inflation, and treasury yields.
Video Transcript
AKIKO FUJITA: Fed Chair Jay Powell speaking during an event earlier, suggesting a pause in rate hikes could be on the table because of the stress in the banking system. Take a listen.
JAY POWELL: While the financial stability tools help to calm conditions in the banking sector, developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring, and inflation. So as a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals. Of course, the extent of that is highly uncertain.
AKIKO FUJITA: So, Seana, the Fed chair, they were talking specifically about these tools the Central Bank has to essentially stabilize the banking system, the financial market, saying while they're supposed to be independent, one could potentially inform the other. In other words, that could affect the monetary policy that they're looking at. And that could lead to rates not going as high as initially expected.
Now it's worth noting that after the last meeting, we have heard from some Fed officials who've sort of implied a potential pause coming in the next meeting here. But interesting to watch the moves in the Treasury market, specifically on the back of this. It feels like there's some optimism that's starting to seep in here that there could be an economic rebound, but more importantly, that inflation could be tamed without the kind of hard landing we've been talking about for some time.
SEANA SMITH: Yeah, exactly, And, Akiko, I think, just looking at the pricing action that we have seen in the markets, what we've seen-- and the Fed funds futures in terms of the CME, that tracking tool there, I think investors are having a very hard time trying to predict what we are going to get from the Fed next month if in fact, we will get another 25-basis-point hike or if the Fed is OK with leaving rates where they are today. We know that Fed Chair Powell has said time and time again that there is a bigger risk of not being aggressive enough on inflation rather than taking that wait-and-see approach.
So he was a little bit optimistic. That's at least how the market is viewing that in terms of the fact that the Fed might be done raising rates for now. But like you said there, he was very quick to couch that, saying that the Fed is going to stay, quote, "steadfast on its goal to reduce prices."
And we heard from Dallas Fed President Lorie Logan earlier this week. And she was saying that the economic data right now is not enough to support a rate pause, at least just yet when you take into account the strong retail sales data that we've gotten out earlier this week-- the fact that the housing data actually was pretty good, relatively speaking. So I think it's too early to tell at this point.
AKIKO FUJITA: And, Seana, you pointed to those comments we got from Jay Powell before about doing too much versus too little. The one thing that stood out to me what we heard from today, he said the risks of doing too much versus doing too little are now becoming more balanced. And that would indicate maybe where they are leaning now.
By the way, we were talking about Treasury yields here. What we saw today in the 10-year-- climbing to the highest levels since the SVB collapsed. So that points to where the sentiment is moving the 10-year now at 3.7%. Of course, we're going to be watching, as always, where the Fed moves come the next meeting. But 10 straight hikes is what we've seen so far. And it feels like increasingly, there could be a potential pause.
