More Fed Officials Signal Accelerating Taper Timeline

Rates rise across a flattening curve as Fed officials discuss accelerating taper. Short and medium-term Treasury yields rose dramatically today- ending the day 6-8 basis points higher as a bevy of Fed speakers signaled their support for an accelerated taper of the central bank’s bond purchases. The 2-year Treasury yield climbed 6 basis points to 0.61% – putting the benchmark within 2 basis points of its YTD high. The 10-year Treasury yield rose by a more subdued 4bps, pulling the spread between 2-year and 10-year rates to 0.85%- the lowest its been since the start of the year.

U.S. small banks’ commercial real estate (CRE) lending hits a year-over-year high, while C&I lending breaks out for U.S. large banks With only six weeks left in the lending year for U.S. banks, it’s clear that the tide has turned for U.S. small banks CRE lending, which is on pace to have its best quarter of the year with CRE portfolios growing 6.43% year-over-year. Large banks have experienced three consecutive weeks of declines within CRE, but C&I growth has started to pick up in 4Q and has grown at an 11.13% annualized rate this quarter.

Fed speakers back Powell’s hawkish tone and support tighter monetary policy. Many Fed speakers were on tap today, all of whom echoed normalizing monetary policy sooner rather than later to fend off inflation. Fed Governor Randal Quarles commented today that inflation would likely stay above the Fed’s 2.0% target longer than anticipated, and the Fed should be prepared to raise rates. Atlanta Fed President Bostic said that a faster taper is “in our interest” and said ending the Fed’s bond-buying program by the end of March would be an appropriate timeframe. Later in the day, Richmond Fed President Barkin commented he is supportive of “normalizing policy” while Mary Daley, one of the more dovish Fed voters, supported the need to “taper asset purchases faster than we anticipated.”