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James Hyerczyk
Atlanta Fed's Bostic

Fed speakers have grabbed the headlines this week with some supporting the recent rise in Treasury yields to their highest levels since March 2020 and other making comments that weighed on yields. All of this is taking place ahead of Thursday’s speech by Federal Reserve Chairman Jerome Powell and the central bank’s first policy announcements of the year later in the month.

Why are we talking about Treasury yields now after nearly a year of ignoring their movement? Because with the rollout of the vaccine and brighter days ahead, the Federal Reserve and other major central banks will start addressing their exit strategies from policies that put rates at historically low levels while leading to a record amount of bond buying to prop up the economy.

Furthermore, the promise of more fiscal stimulus from the government is very likely to be inflationary and higher rates will be needed to prevent rapid price increases of basic goods and services.

Keep in mind that interest rates are the fuel that drive the financial markets, not the headlines, not the speculators and Treasurys are the instruments that set the tone in the global market place including the dollar, foreign currencies, gold and stocks. With rates moving since the first of the year, it is important to know what Treasury yields are doing every day before you pull the trigger on a trade.

The words of the Fed policymakers will tell us what is important to watch and react to, not the news headlines.

Atlanta Fed’s Bostic: U.S. Recovery Hinging on Vaccine, Virus Control

The U.S. recovery will not get up to full steam until vaccines are distributed widely enough to end the pandemic, Atlanta Federal Reserve President Raphael Bostic said last Monday and Reuters reported.

“At heart it is a public health crisis first. All the economic fallout has been a function of how we responded to the public health crisis,” Bostic said. “Until that gets settled the economy is going to play out in a slower way.”

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Fed’s Bostic Sees Possible Interest Rate Hike as Soon as the Second Half of Next Year

Interest rates could rise sooner than forecast as the economy recovers more quickly than expected from the throes of the COVID-19 damage, Atlanta Federal Reserve President Raphael Bostic said Monday.

While most of his colleagues don’t see a rate hike coming through until at least 2023, Bostic said he thinks the emergency measures the Fed has taken to combat the pandemic can start to be rolled back within the next two years if not sooner.

“I do think there is some possibility that the economy could come back a bit stronger than some are expecting,” he said during a virtual Q&A session before the Atlanta Rotary Club. “If that happens, I’m prepared to support pulling back and recalibrating a bit of our accommodation and then considering moving the policy rate.”

“But I don’t see that happening in 2021. A whole lot would have to happen to get us there,” he added. “Then we’ll see into 2022. Maybe the second half of 2022 or even 2023 where that might be more in play.”

Bostic Has Three Data Points for Fed Roll Back of Policy Shifts

Those metrics include temporary versus permanent job losses, the health of small businesses, and consumer confidence. Overriding all three, though, will be the path of the virus and the success of the efforts to control it, he said.

For a look at all of today’s economic events, check out our economic calendar.
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