Powell was asked today if he thinks the market is losing credibility in the Fed's monetary policy.
His answer was simple but useful to understand the relationship between Treasury yields and interest rates:
His answer was simple but useful to understand the relationship between Treasury yields and interest rates:
The Two Year Treasury yield rose from 0.53% on November 30th to 2.65% now.
Powell announced in Q4 2021 that interest rate hikes were coming.
The Treasury market took Powell's words as guidance and yields began to climb before interest rates were actually raised.
Powell announced in Q4 2021 that interest rate hikes were coming.
The Treasury market took Powell's words as guidance and yields began to climb before interest rates were actually raised.
The Fed Funds Rate currently has a range of just 0.75-1%, but the 2Yr Treasury is much higher at 2.65% since the market expects that the Fed Funds Rate will continue to rise over the next two years.
Essentially, treasury yields rose as interest rate expectations rose.
Essentially, treasury yields rose as interest rate expectations rose.
Powell gave the market a heads up of what was coming, the market believed the Fed's guidance and thus interest rate expectations and treasury yields moved accordingly.
Just a concept we found pretty interesting from today's #FOMC presser.
Just a concept we found pretty interesting from today's #FOMC presser.
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