Treasury yields climbed after Jerome Powell threw cold water on Wall Street’s hopes that the Federal Reserve has finished hiking rates.
The chairman warned the US central bank against the risk of being ‘misled’ by good data on prices, saying the mission to return inflation to 2 per cent had a ‘long way to go’.
Speaking at an IMF event, Powell said that officials were ‘gratified’ by the retreat in price pressures but stopped short of sounding the all-clear.
‘We know that ongoing progress towards our 2 per cent goal is not assured, inflation has given us a few head fakes,’ he said.
‘If it becomes appropriate to tighten policy further, we will not hesitate to do so.’ Powell’s remarks come just as traders started to bet that the steepest tightening cycle in a generation is over.
Feed chairman Jerome Powell warned the US central bank against the risk of being ‘misled’ by good data on prices, saying the mission to return inflation to 2had a ‘long way to go’
They also follow the central bank’s latest policy meeting – at which officials extended a pause in rate hikes.
Treasuries remained under pressure, with the 30-year yield up 0.13 percentage points on the day at 4.8 per cent, while the benchmark 10-year yield rose 0.11 percentage points to 4.62 per cent. Bond yields move inversely to prices.
The comments come as Bank of England chief economist Huw Pill gave the strongest hint yet that interest rates in the UK have peaked.
Speaking at a conference, Pill warned that rates will stay high for an extended period to squeeze inflation out of the system – but said it is unlikely they will be hiked again.
‘Having established monetary policy in restrictive territory, it’s not the case that we need to raise rates in order to bear down on inflation,’ he said at an Institute of Chartered Accountants in England and Wales (ICAEW) event.
‘Sustaining rates at their current restrictive level will continue to bear down on inflation.’
His remarks are a further sign of a rift between Pill and the Bank of England governor Andrew Bailey who has not said whether rates have peaked and this week poured cold water on expectations of a cut by the middle of next year.
‘It is too early to be talking about cutting rates,’ Bailey said at an event hosted by the Central Bank of Ireland on Wednesday.
Bailey’s comments came after Pill had said rates could start coming back down from their 15-year high by August 2024.
Yesterday, he stopped short of putting a time frame on how long rates will be held but, on Monday, he said a cut by the middle of next year did not seem ‘totally unreasonable’.
Figures showed that the inflation rate was 6.7 per cent in September – ahead of the Bank’s 2 per cent target. Yesterday, yields on short and long dated UK government bonds rose.
The yield on benchmark 10-year gilts rose 0.03 percentage points to 4.27 per cent, while two-year gilt yields were up 0.02 percentage points at 4.64 per cent.
The pound fell 0.5 per cent against the dollar at £1.2227.