(Bloomberg) — Federal Reserve Chair Jerome Powell said current monetary policy is appropriate and there’s no reason to push back against a surge in Treasury yields over the past month.
“The stance of monetary policy we have today we believe is appropriate,” Powell said in a virtual press briefing Wednesday following a meeting of the Federal Open Market Committee. “We think our asset purchases in their current form — which is to say across the curve, $80 billion in Treasuries, $40 billion in mortgage-backed securities, on net — we think that’s the right place for our asset purchases.”
U.S. Treasury yields have risen sharply in the past month as the economic outlook has improved amid accelerated vaccinations and $1.9 trillion in fresh fiscal aid, with investors increasing bets that the Fed will raise rates earlier than previously signaled.
The benchmark 10-year rate climbed Wednesday to the highest since the Covid-19 pandemic took hold more than a year ago, while the 30-year yield touched its loftiest level since 2019.
Even so, “if you look at various indexes of financial conditions, what you’ll see is they generally do show financial conditions overall to be highly accommodative,” Powell said. “And that is appropriate.”
The increase in yields had triggered a debate on whether the central bank would push back against the move — perhaps by suggesting the rise was causing an unwelcome tightening in financial conditions — which could be a prelude to Fed intervention.
Powell repeated his view expressed earlier this month: “I would be concerned by disorderly conditions in markets or by persistent tightening of financial conditions that threaten the achievement of our goals.”
The Fed has tools to blunt rising yields if it chooses to use them, including buying more longer-dated Treasuries, shifting asset purchases to government bonds from mortgage-backed securities, or targeting specific numerical benchmarks for yields, known as yield-curve control.
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