The US Federal Reserve is currently in a difficult situation. Investors are growing impatient, waiting for more decisive measures related to the US government's $33.5 trillion mountain of debt.
Concerns over America’s fiscal future have contributed to a rise in US bond yields, thus prompting the Fed to consider postponing another interest rate hike. After all, this could dampen economic activity and trigger a surge in unemployment.
According to analysts, rising economic pressures threaten a slowdown in economic growth. The most disturbing factor for market participants is galloping inflation, which reduces the Fed's room for maneuver and lowers the probability of a monetary policy shift.
Against this background, the 10-year Treasury yield has soared to 4.83%, rebounding from a one-year low of 3.31%. At the same time, Fed Chair Jerome Powell’s statements are still the focus of investors who are waiting for his comments on inflation. Notably, it is currently above the central bank’s 2% target and may force policymakers to reconsider plans in favor of another interest rate increase.
Powell is widely expected to back a consensus that higher yields would allow the regulator to keep monetary policy stable. However, given that inflation stays above the target value, the head of the Fed may well advocate for a rate hike later this year.
