Fed’s Hammack says Treasury yields modest by historic standards

Investing.com -- Cleveland Federal Reserve President Beth Hammack said on Monday that current US Treasury yields align with historical norms, adding that a return to 3% home mortgage rates would likely signal economic problems.

Hammack said the rates on the 10-year Treasury note now match levels seen in the 1990s. "These rates look like higher rates but I think of these as modest," she stated. She noted that low mortgage rates from the 2007-2009 financial crisis through the COVID-19 pandemic coincided with sluggish growth and aggressive central bank intervention.

Current mortgage rates stand above 7%.

The Fed official said the neutral interest rate is likely higher but remains difficult to determine precisely. She indicated the central bank is hearing "early warning signs" of a possible problem with inflation expectations.

Hammack said there is a need to "cool the economy at the margins" and that more policy restraint is needed. She noted that if monetary policy remains unchanged, market conditions would shift.

The Fed's current question centers on how quickly to make policy more restrictive, Hammack said. She emphasized the importance of not threatening the employment side of the Fed's dual mandate.

Hammack observed that higher interest rates may not dissuade hyperscalers but could influence firms in other industries. She noted that comments from low-income workers initially focused on trading down to cheaper options, but now these workers are beginning to juggle which bills to pay.

Original Article

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