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Treasury Yields Rise as Investors Show Appreciation for Consistency of Fed Chair Powell’s Hawkish Message


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U.S. Federal Reserve Chairman Jerome Powell testified in front of the House Financial Services Committee on Wednesday, reiterating remarks he made to the Senate Banking Committee the previous day.

If you recall on Tuesday, Powell said, "Overall, we see the risk of the economy unexpectedly weakening as roughly balanced with the possibility of the economy growing faster than we currently anticipate." He also added that growth in the second quarter was "considerably stronger that in the first."

The Fed chief also said the economy was strong enough to handle tighter monetary policy.

The consistency in Powell's message on Wednesday was the highlight of his testimony. The price action in the Treasurys, equities and the dollar indicates that investors appreciate the Fed's pretty consistent line of thinking regarding monetary policy. It also shows they want to see policy move in a predictable manner. Additionally, although Powell reiterated the Fed's gradual approach to raising rates, investors appreciate that he left the door open for changes in case the economy slows down.

U.S. Treasury Markets

U.S. Treasury yields rose on Wednesday after Fed Chair Jerome Powell's testimony. His hawkish message strongly supported the idea that the Fed will raise interest rates at least two more times in 2018.

The two-year Treasury note yield continues to rise, moving to 2.624, its highest level in nearly 10 years, before pulling back to 2.615. The yield on the benchmark 10-year Treasury note rose to 2.880 percent, while the yield on the 30-year Treasury bond moved up to 2.997 percent.

U.S. Economic Reports

It was a bad day for the U.S. housing sector. U.S. homebuilding fell to a nine-month low in June and permits declined for a third straight month.

According to the Commerce Department, housing starts tumbled 12.3 percent to a seasonally adjusted annual rate of 1.173 million units last month. That was the lowest level since September 2017. The percent drop was the biggest since November 2016. Additionally, data for May was revised down to show starts rising at a 1.337 million-unit-rate instead of the previously reported 1.350 million-unit rate.

Economists had forecast housing starts falling to a pace of 1.320 million units last month.

Building permits dropped 2.2 percent to a rate of 1.273 million units, also the lowest level since September 2017. Economists had forecast housing permits rising to a rate of 1.330 million units.

In other news, the Fed released its Beige Book late Wednesday. It showed that manufacturers in every one of the Federal Reserve's 12 districts worried about the impact of tariffs, even as the U.S. economy continued to expand at a moderate to modest pace.

"Manufacturers in all districts expressed concern about tariffs and in many districts reported higher prices and supply disruptions that they attributed to the new trade policies," the Fed said in its report.

Also in the report, the Fed's contacts continued to note tight labor markets and a shortage of skilled workers, but wage increases remained modest to moderate. The price of key inputs rose further and some districts said that they expected pricing pressures to intensify further.

This article was originally posted on FX Empire

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This article appears in: Investing , Bonds , US Markets
Referenced Symbols: SPX



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