Fed governor sees Treasury yields slowing economy, expects inflation return to 2% target
Fed Governor Christopher Waller, in a discussion with former House Speaker Paul Ryan on Wednesday, expressed his view that the recent rise in Treasury yields is contributing to the slowdown of the economy. This effect is typically achieved through changes in Federal Reserve policy. His comments come as U.S. stocks (DJIA SPX) advanced and the 10-year Treasury yield BX:TMUBMUSD10Y dropped 7 basis points to 4.59%, despite a report from the Labor Department indicating an increase in producer prices.
Waller compared the current economic situation to earlier this year when a robust economy and looming inflation required contemplation of interest rate hikes. The Silicon Valley Bank’s collapse in March, which was expected to slow down the economy and diminish the need for rate hikes, did not lead to the anticipated credit crunch. As a result, projections for rate hikes were reinstated by summer.
The Fed Governor pointed out encouraging inflation data and a softening in wage growth, while forecasting a potential rise in U.S. GDP above 4% in Q3. Waller described these conditions as an “infamous soft landing,” a term used to describe an economy that slows down just enough to prevent it from overheating, but not enough to cause a recession.
In regards to global events, Waller dismissed any immediate impacts of geopolitical incidents like Russia’s invasion of Ukraine and the Israel-Gaza conflict on monetary policy unless they broadly affect business and consumer confidence. He concluded by stating that if current trends persist, inflation will return to the Federal Reserve’s 2% target.
