Lael Brainard hints that tumult in the bond market worried the Federal Reserve.
Lael Brainard, one of the Federal Reserve’s Washington-based governors, on Tuesday offered the first major hint that a wild ride in bond markets over the past week may have raised alarms at the nation’s central bank.
“I am paying close attention to market developments — some of those moves last week and the speed of those moves caught my eye,” Ms. Brainard said, speaking at a Council on Foreign Relations webcast. “I would be concerned if I saw disorderly conditions, or persistent tightening in financial conditions that could slow progress toward our goal.”
Ms. Brainard’s comments come after government bond yields climbed last week, a jump that rippled through financial markets. After dropping as low as about 0.5 percent in 2020,
the yield on a 10-year Treasury note — basically the rate the United States government must pay to borrow money for a decade — jumped as high as 1.61 percent on Thursday. It has retreated since and by Tuesday was around 1.41 percent.
The recent rise in bond yields seems to be driven by a belief among investors that growth and inflation will shoot higher this year, perhaps prompting the Fed to pull back on its support for the economy and markets sooner than previously expected. Fed officials have been clear that they will be patient in removing their policy help, and that although they expect price gains to pop later this year, the increase is unlikely to last.
Although the bond yields were climbing, Fed officials had maintained a sanguine tone about the increase.
“In a way, it’s a statement of confidence on the part of markets that we will have a robust and ultimately complete recovery,” Jerome H. Powell, the Fed’s chair, said of climbing yields during congressional testimony earlier last week.
But higher government bond yields also affect borrowing costs for everyone from home buyers to big companies, and the sudden jump had startled investors. Analysts have been looking for any sign that the Fed is paying attention to what is going on, or that it might do something to bring yields down. Some said the tumult on Thursday in particular felt reminiscent of trading in the early days of the pandemic last March, when Treasury markets careened out of control until the Fed intervened.
On Tuesday, Ms. Brainard made it clear that the Fed was watching:
“I’ll continue to watch market developments carefully, and if those market developments are inconsistent, at that juncture, we could make a judgment,” she said. “Certainly from where I sit, we’ve got some distance to go to meet our goals.”
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