rocketing bond yields* Half of the U.S. Congress is leaderless with a government shutdown deadline approaching;and services prices in September threatened, as one analyst said, to spoil the Fed's "narrative" that price pressures would continue to wane.
Since the September meeting "a lot has changed," Krishna Guha, vice chairman of Evercore ISI, wrote after several Fed officials last week signaled the rise in bond yields might take more rate hikes off the table. "The Fed is now paying attention." While that might help slow inflation, it can also go too far. The yield on the 10-year Treasury note is just about six-tenths of a percentage point below the Fed's policy rate; when the gap between the two shifts from negative to positive is when monetary policy gets perhaps its truest test. Those moments tend to be followed by recession. When they aren't, it can signal the "soft landing" the Fed seeks.Powell needs also to address where he thinks inflation is headed.