Federal Reserve Chairman Jerome Powell said at a speech at the Economic Club of New York on Wednesday that the U.S. central bank will allow bond market volatility to “play out” and rise, Business Insider writes.
He cited several factors leading to higher Treasury yields. Today, the 10-year yield is close to 5% for the first time since 2007.
“The market was volatile, with rates moving up and down frequently. I think we have to let it evolve and observe. There is clearly a tightening of financial conditions at the moment and so we will be monitoring this closely.”
However, he did not rule out a future rate hike based on incoming economic data, although rising bond yields have been a significant factor in recent financial constraints.
This happened, most likely, in anticipation of rising inflation or changes in the federal funds rate over the next year or two.
Other possible reasons could include rising tenure premiums, improved economic resilience, rising fiscal deficits, quantitative tightening and a possible change in the correlation between stocks and bonds.
