US Treasury yields higher despite Trump's criticism of the Fed

Irving Hamilton
July 22, 2018

The narrowing gap between yields on long-term and short-term Treasury bonds has helped convince at least one USA central banker the Federal Reserve should stop raising interest rates until and unless inflation or growth picks up.

Note that the Fed's own range of estimates for the neutral rate was 2.3 percent to 3.5 percent in June.

The US Treasury yield curve, as represented by 10s2s spread, hit fresh 11-year low (flattest) since August 2007. Further, the central bank intends to hike rates two more times this year.

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A yield curve is said to invert when yields on short-term debt exceed those on long-term debt.

Treasury yields changed little following Federal Reserve Chairman Jerome Powell's semiannual monetary policy report today to the Senate Committee on Banking, Housing, and Urban Affairs, citing that the strength of the economy is prime for "gradually raising the federal funds rate".

Among Fed policymakers who do see a flashing yellow light in the flattening yield curve - among them, Dallas Fed President Robert Kaplan - Kashkari stands almost alone in calling for a pause in rate hikes.

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