Bond Yields Rose To a 19-Year High As Selloff Continues. Stocks Retreated.
Stocks fell on Wednesday as Treasury yields continued to climb, reaching a 19-year high. The benchmark 10-year Treasury reached 5.108%, the highest level since July 2007.
The Dow Jones Industrial Average dropped 0.68%, while the S&P 500 did so 0.75%. The tech-heavy Nasdaq Composite underperformed, decreasing 1.13% and retreating from a record high hit on Tuesday.
Markets fell after two members of the Federal Reserve anticipated the possibility of further interest rate hikes to tame inflation.
Federal Reserve Governor Michael Barr said “further policy adjustments are likely to be needed” to reduce price increases.
“Economic growth is strong and the labor market is solid, but inflation is above our 2 percent target and not clearly trending toward target in a timely way,” he added. “Moreover, risks to achieving our inflation target have increased, while risks to the labor market have receded.”
Elsewhere, Boston Federal Reserve President Susan Collins said she supported last week’s rate hike and anticipated the potential needs for more moves of the kind.
In a LinkedIn post, Collins said she now sees “an increased likelihood of future scenarios in which inflation remains notably above 2 percent.”
She went on to say that, on the flip side, “labor market conditions seem a bit stronger overall, and the unemployment rate remains low” even though “experiences vary considerably by place and sector.”
“With the labor market on a better footing, monetary policy can focus on a timely return to price stability, especially after five and a half years of too high inflation. A somewhat more restrictive federal funds rate will help ensure that inflation durably returns to target,” she claimed.
The Fed delivered the widely expected rate hike last week in a unanimous decision. Fed chair Kevin Warsh also struck a hawkish tone in his press conference following the decision, saying the FOMC’s “predominant focus is on the price stability side of our mandate.” “The plain fact is that inflation is too high, and has been for too long,” he added.
Warsh went on to say that “this summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” as several categories within the recent inflation readings are still above 3% on a six-and 12-month basis.
