Fed's Powell faces 'what, me worry?' moment of spiking bond yields, war, political stalemate

WASHINGTON - Federal Reserve officials may not raise interest rates when they meet in two weeks but neither will they say their 19-month drive to hike borrowing costs is over, a difficult messaging challenge U.S. central bank chief Jerome Powell will take on this week.* Reports have shown the economy still growing too fast to cool inflation fully, while rocketing bond yields could push that activity to a hard stop;* Half of the U.S.

The Fed "has pivoted rather quickly from a singular inflation focus to weighing recession avoidance," analysts at Monetary Policy Analytics, led by former Fed Governor Larry Meyer, wrote last week.Balancing the two with the right policy setting now hinges in part on whether the rise in Treasury yields is due to investor expectations of further Fed rate increases or to changing views of the economy and the risks facing it.

It is a key moment for Powell to take stock, made even more critical by the outbreak of war between Israel and the militant Palestinian group Hamas as well as a political battle in Washington that saw Republicans oust their top leader in the U.S. House of Representatives. That is more than double the "potential" growth rate the Fed sees as consistent with its 2% inflation target, and which serves as a benchmark for how much it feels the economy needs to slow to regain price stability.

The data for September "do not support the Fed's narrative that disinflation will march on ... even if the economy keeps growing and unemployment stays low," said Steven Blitz, chief U.S. economist at TS Lombard, arguing the economy experienced a "nascent upturn" in the middle of the year that is "beginning to reverse disinflation as well."

Texas congressman Dan Crenshaw played down the comment from CNN's Jake Tapper, saying "a lot of them did that."

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