2y UST Yield Closes at 17-Year High as Powell Delivers on Expectations

Swap curve flattens in the aftermath of Powell speech. Chair Powell finally gave his long-awaited speech today and delivered what the market generally interpreted as a hawkish view. Powell’s speech, coupled with higher-than-expected results from University of Michigan Inflation Expectation Surveys, led to a sell-off at the front end of the curve. The 2-year Treasury yield ultimately closed at 5.08%, which is a 17+ year high (2006).

Powell reaffirms commitment to contain inflation. In his Jackson Hole address, Chair Powell said the Fed is prepared to keep hiking to bring inflation back to its 2% target. Powell pointed out that while some inflation metrics have shown slowing, the economy may not be cooling as fast as expected. Still, he pushed back on the Fed raising their long-term inflation target above 2%, stating, “two percent is and will remain our inflation target.” In line with market expectations, he hinted that the Fed could hold rates steady at its September meeting.

Week ahead. Next week’s data will be headlined by PCE, personal income and spending, and nonfarm payrolls. The data is generally expected to increase from last month, except for nonfarm payrolls, which is forecasted at 168k in August from 187k in July. Meanwhile, the unemployment rate is expected to remain flat at 3.5%, another potential sign of a robust labor market.