Rates Rise Ahead of Powell Congressional Testimony

Rates rise ahead of Fed Chair Jerome Powell’s testimony

Multiple Fed officials spoke today, providing their thoughts on tapering and the general economic outlook.  While officials remain divided on the tapering timeline, Powell is expected to provide additional insight during his testimony before Congress tomorrow.  Ahead of his testimony, Treasury yields and swap rates rose 1-10 bps across the curve – the 10-year UST yield closed 5 bps higher at 1.49%.  Major equity indices closed in the green – the S&P 500, DJIA, and Nasdaq rose 1.4%, 1.8%, and 0.8%, respectively.

Dallas Fed President Robert Kaplan wants the Fed to begin tapering “sooner rather than later”

Following last week’s FOMC meeting, Kaplan commented, “I think we’d be healthier, as we’re making progress in weathering the pandemic and achieving our goals, to start adjusting these purchases — Treasuries and mortgage-backed securities — sooner rather than later.”  St. Louis Fed President James Bullard agrees, calling last week’s tapering debate “appropriate.”  While the Fed continues to label recent inflation spikes as transitory, Bullard acknowledged there is a level of uncertainty, adding “We have to be ready for the idea that there is upside risk to inflation and for it to go higher.”

New York Fed President John Williams thinks inflation levels will decrease in the coming years

Williams agrees with the Fed’s view that higher levels of inflation will not last in the long term, commenting, “I expect that as price reversals and short-run imbalances from the economy reopening play out, inflation will come down from around 3% this year to close to 2% next year, and in 2023.”  Citing current elevated levels of unemployment, he still believes the economic recovery has “not progressed enough for the FOMC to shift its monetary policy stance of strong support for the economic recovery.”

COVID-19 cases are increasing in some Southern states

While over 53% of people in the US have received at least one dose of the vaccine, some states will lover vaccination rates are experiencing a rise in COVID cases.  Missouri, Arkansas, and Utah reported the seven-day average of hospitalizations has risen over 30% within the last few weeks.  Experts attribute the spike to the Delta variant, which is highly transmissible.  In the US, over 33.5 million cases have been recorded, with fatalities topping 601,000.