The yield on the benchmark 10-year Treasury note climbed to 2.96 percent on May 17, up from 1.5 percent at the start of 2022, as investors awaited news on U.S economic data and remarks on future monetary policy from Federal Reserve policymakers.
The rate on a 30-year fixed-rate mortgage exceeded 5.4 percent in the week ending May 13, up slightly more than 2 percentage points than the rate at the start of 2022.
Former Federal Reserve Chairman Ben Bernanke said on May 16 that the central bank had made a mistake in waiting to address the warning signs of a looming inflation crisis, the worst in the United States since the early 1980s.
Bernanke led the Fed through the Great Recession and presided over what was then an unprecedented monetary policy strategy designed to expand economic growth.
Bernanke told CNBC that while he understood why the central bank had delayed its response to inflation, he believes that its late decision to raise rates was an error in hindsight.
Inflation is running at more than three times the Federal Reserve’s 2 percent target.
U.S. retail sales were as expected, as consumer spending rose 0.9 percent in April according to a report from the the U.S. Census Bureau.
However, U.S. consumer prices rose 8.3 percent in April compared to 12 months prior, according to Labor Department figures published May 11.
Industrial production rose 1.1 percent in April—better than expected, with a boost in utilities and mining—while capacity utilization rose 79 percent, which was about in line with most consensus estimates.
Business inventories also made an improvement with a 2 percent jump in March.
At noon on May 17, the U.S. Treasury Department auctioned off $34 billion in 52-week bills.
Market participants were monitoring a flurry of Fed speeches on future policy, including afternoon comments from Federal Reserve Chairman Jerome Powell at The Wall Street Journal’s Future of Everything Festival.
“What we need to see is inflation coming down in a clear and convincing way and we’re going to keep pushing until we see that,” Powell said. “If that involves moving past broadly understood levels of ‘neutral,’ we won’t hesitate to do that.”
Powell added that, “if we don’t see that, we will have to consider moving more aggressively” to tighten financial conditions.
He later told the audience that the central bank would evaluate the situation “meeting by meeting, data reading by data reading,” regarding how the economy and inflation are reacting to additional rate hikes expected at upcoming Fed policy meetings.
Powell also mentioned that two additional rate hikes are on the table in June and July and that the target for their benchmark lending rate will be in the 0.75 to 1 percent range.
Powell said the Fed would not flinch from raising rates to more restrictive levels if the pace of price increases fails to slow, after raising its policy rate by 75 basis points so far in 2022.
“We will go until we feel we are at a place where we can say, ‘Yes, financial conditions are at an appropriate place, we see inflation coming down,’” he said.
“We like to work through expectations and I’m not blessing any particular day’s readings but it’s been good to see financial markets reacting in advance based on the way we’re speaking about the economy.”
Powell said the U.S. economy is strong, and that it’s “well positioned” to withstand a tighter monetary policy.
“There could be some pain involved in restoring price stability—but we think we can sustain a strong labor market,” he concluded.
