Fed Officials Upbeat on Outlook, Bond Yield Rise Not Source of Concern
By Michael S. Derby
Federal Reserve officials said Thursday they continue to see the
U.S. economy in recovery mode, with several noting they aren't
concerned about the recent rise in long-term bond yields and see no
need to use monetary policy to push against it.
"Despite the near-term challenges, the longer-term outlook for
the economy has improved, and our actions of the past year position
monetary policy well to support a strong, full recovery and
achievement of our goals of maximum employment and price
stability," Federal Reserve Bank of New York leader John Williams
said during a video appearance.
Mr. Williams also said government spending has been a big help
for the economy and the Fed is "fully committed to supporting the
economy through this period and reaching our maximum employment and
price stability goals." He didn't offer specifics about central
bank policy going forward.
Growth this year could be the "strongest we've seen in decades,"
as vaccines to combat the coronavirus pandemic roll out, Mr.
Mr. Williams spoke amid heavy market volatility, as stock prices
fell sharply and Treasury yields rose. The rising cost of
longer-term borrowing has rattled many investors, but over recent
days Fed officials have shrugged off higher Treasury yields and
attributed the bond market's shift toward higher borrowing costs to
expectations for an improving economy.
Long-term bond yields "have definitely moved at the higher end,
the longer end, but right now I'm not worried about that," Federal
Reserve Bank of Atlanta President Raphael Bostic told reporters
Thursday. When it comes to Fed actions that could counter higher
yields, "I'm not expecting that we'll need to respond in terms of
our policy," Mr. Bostic added.
Mssrs. Williams and Bostic are voting members of the
rate-setting Federal Open Market Committee. They weighed in as the
jump in Treasury yields triggered anxiety about the prospect of
rising inflation among some market participants. At the same time,
others wonder whether the Fed may need to ease monetary policy
because of the theoretical risk rising yields could hinder growth
by boosting real-world borrowing costs.
The main way the Fed would counter a rise in yields would be to
increase its $120 billion a month in Treasury and mortgage bond
buying, or the central bank could change the mix of securities it
buys. Either approach would seek to cap a rise in yields and in
theory limit the danger it chokes off a nascent recovery.
Fed officials, however, say current yield levels are only
returning to where they were before the pandemic struck a year ago,
and that borrowing costs on balance remain quite low. They also see
rising yields as a natural development given the economy's
"I think that the rise in yield is probably a good sign so far,
because it does reflect a better outlook for U.S. economic growth
and inflation expectations" that are converging on the Fed's 2%
target, Federal Reserve Bank of St. Louis President James Bullard
told reporters Thursday. "That naturally, to me, suggests that
yields should be somewhat higher than they would have otherwise
Federal Reserve Bank of Kansas City President Esther George said
she also wasn't worried about a rise in long-term yields, noting
she sees the increase as a sign investors are confident the economy
is set to recover strongly.
Fed officials who spoke Thursday gave no sign they want to
change the central bank's monetary policy, which combines bond
buying with a near zero short-term target rate they have signaled
they expect to keep in place for several years.
Fed officials also said vaccinations are the key to ensuring a
healthy recovery that should help lower the unemployment rate. Mr.
Bullard, who doesn't have a vote on the FOMC this year, said the
current 6.3% jobless rate could fall to 4.5% this year.
Ms. George said the economy is poised for a "strong recovery
once widespread vaccination is achieved." The nonvoting member of
the FOMC warned against the Fed providing more aid to the economy,
saying it would be unlikely to help the economy very much.
Ms. George said more government spending could speed the
economy's recovery, but didn't call for more aid. She also
suggested the extraordinary interventions by policy makers during
the pandemic could have unintended consequences, noting many people
may save money from stimulus programs instead of spending it.
Write to Michael S. Derby at email@example.com
(END) Dow Jones Newswires
February 25, 2021 17:02 ET (22:02 GMT)
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