Roundup: US Treasury Yields & Global Liquidity

Hi all,

This is Dylan LeClair, presenting this week’s Onramp Weekly Roundup.

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And now, here’s the weekly roundup…

2-Year Yields, Fed Speakers, Signal End of the Tightening Cycle

Philadelphia Fed President Patrick Harker recently provided some insights into the economic forecast and the possibility of a shift in monetary policy. Here’s a summary of his statement:

“I expect core PCE inflation to decline to a rate perhaps just below 4 percent year over year by the end of 2023… I forecast unemployment to tick up slightly and better align with the natural unemployment rate as labor tightness continues to ease… Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.”

In addition to President Harker’s outlook, 2-year yields are signaling that the tightening cycle is likely over. These yields, seen as a proxy for the market’s expectations for rates over the coming two years, are 36 basis points below the current Fed funds rate. This is a clear indication from the market that it believes the Fed is finished with tightening.