- The Treasury market appears more stable after Powell indicates the Fed will be patient and suggests that the current policy remains fitting.
- DXY peaked at 99.63 but has now dropped to 99.51, facing downward pressure due to falling yields.
- Powell warns that tariffs might impede the Fed’s goals and create uncertainty regarding policy direction.
The US Treasury saw a slight decline across the curve, with yields dropping by an average of 2.5-3 basis points, following a bigger drop. When asked about the Federal Reserve’s stance, Chairman Jerome Powell suggested they seem to favor one aspect of their dual mandate.
Following Powell’s remarks about the lack of urgency for action, the 10-year yield dipped to 4.27%
As of now, the 10-year Treasury yield stands at 2.271%. The US dollar index (DXY) has also decreased from its daily high of 99.63.
The DXY, which measures the dollar against a basket of currencies, has changed to 99.51, reflecting a 0.12% decline.
Chairman Powell expressed that the Fed can afford to be patient, emphasizing that they’re in no rush. He stated that the current monetary policy is suitable and mentioned that they could act swiftly if necessary. He further noted that if tariffs persist, achieving their targets this year would be unlikely.
US 10-year yields daily chart
FAD FAQ
US monetary policy is guided by the Federal Reserve System, which has two main objectives: ensuring price stability and promoting full employment. The Fed primarily uses interest rate adjustments to meet these goals. When inflation rises quickly beyond the target of 2%, interest rates tend to increase, resulting in higher overall borrowing costs. This tends to strengthen the US dollar, making it a more attractive option. Conversely, if inflation dips below 2% or unemployment is high, the Fed might lower rates to encourage borrowing.
The Federal Reserve conducts eight policy meetings each year, where the Federal Open Market Committee (FOMC) evaluates the economic landscape and makes decisions about monetary policy. This committee includes twelve federal officials: seven members from the Governor’s Committee, the chairman of the Federal Reserve Bank of New York, and four of the other eleven Regional Reserve Bank presidents, rotating annually.
In extreme cases, the Federal Reserve may use a method known as Quantitative Easing (QE). This policy significantly boosts credit flow when the economy is sluggish. QE is a non-traditional tactic often employed during crises or when inflation is low. It’s what the Fed resorted to during the 2008 financial crisis, involving the Fed printing new dollars to buy high-quality bonds from financial institutions. Typically, QE weakens the US dollar.
Quantitative Tightening (QT) acts as the opposite of QE, where the Federal Reserve stops purchasing bonds from financial institutions and refrains from reinvesting principal from maturing bonds into new purchases. QT usually supports a stronger US dollar.
