Treasury yields trade mixed after lawmakers focus on Federal Reserve’s ability to combat higher inflation

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Treasury yields were mixed on Tuesday after lawmakers focused on the US central bank’s ability to deal with persistently high inflation during Federal Reserve Chairman Jerome Powell’s reaffirmation hearing.

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In his reaffirmation hearing before Congress, Powell said high inflation would last “well into the middle of this year,” and that it could cause a “short-term” stagnation in Omicron growth. While Powell indicated that the Fed would take steps to ensure the economy did not suffer high inflation, lawmakers continued to question the central bank’s ability to deal with the problem.

Powell says the Fed can calm inflation without hurting the labor market

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The bond market barely moved on Tuesday’s testimony from Powell. Meanwhile, expectations are rising for a series of rate hikes in 2022, according to CME Fedwatch Tool, which now shows the possibility of more than four increases by the end of the year.

Portions of Wall Street are also sounding the alarm about the prospect of higher-than-expected 2022 hikes. Economists at Deutsche Bank and Goldman Sachs Group have predicted four hikes this year — more than the Fed — and JPMorgan Chase & Co.’s Jamie Dimon told CNBC on Monday to expect even more.

In a virtual speech on Tuesday, Kansas City Fed Chair Esther George said the central bank would need to build on its massive $8.5 trillion pile of bond holdings to help curb the highest US inflation in nearly 40 years and discourage undue risk-taking. should be reduced rapidly. His colleague, St. Louis Fed Chairman James Bullard, is set to speak later today. Looking ahead, auction of $52 billion in 3-year notes BX: TMUBMUSD03Y is scheduled for 1 p.m. Eastern Time.

Wednesday’s economic data will include the consumer-price index, which is expected to show a 7.1% year-on-year headline for December, the highest level in four decades and has the potential to further strengthen market rate-growth . Expectations.

On Thursday, Fed Gov. Lyle will testify before a similar Senate panel as Brainard Powell, as he aims to succeed Vice Chairman Richard Clarida, who will step down Friday two weeks earlier than expected after being involved in a dispute. Stock transactions in 2020.

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