The yield on US Treasury bonds declined slightly, as market participants perceived yesterday's statements by the Fed chairman as "dovish", even after he reiterated that curbing inflation would require higher interest rates and more time.
The yield on 5-year Treasury bonds fell by 2.9 basis points, reaching 3.815%, while the yield on 30-year bonds was 3.71% (+0.4 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 2.3 basis points to 4.448%, while the yield on 10-year bonds fell to 3.66% (-1.4 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 79 basis points.
"The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy. But it has a long way to go. These are the very early stages," Powell said.
The president of the Federal Reserve Bank of Atlanta, Rafael Bostic, said on Monday that strong US labor market data for January means that Fed policymakers “will have to do a little more work.” In addition, Bostic added that interest rates may be raised more than he predicted.
His colleague from the Federal Reserve Bank of Minneapolis, Neel Kashkari, said yesterday that the January labor market report shows that the Central Bank needs to continue raising interest rates, and also confirmed his forecast for the target level of the federal funds rate at 5.4%.
Today, investors will continue to analyze the statements of Fed policymakers: Federal Reserve Bank of New York President John Williams (at 14:15 GMT), Federal Reserve vice chair for supervision Michael Barr (at 15:00 GMT) and Fed Board Governor Christopher Waller (at 18:45 GMT) will make speeches.