Philadelphia Federal Reserve President Anna Paulson said the Fed may need to raise interest rates further to combat persistent inflation, which remains around 2.5%-3%, well above the 2% target. She indicated that modest additional rate tightening may be warranted if economic conditions evolve as expected, while economic output remains solid and the labor market is holding steady.
Philadelphia Federal Reserve president Anna Paulson said Thursday that further interest rate hikes may be needed to combat stubbornly elevated underlying inflation, despite earlier favoring a pause. Other Fed officials including New York Fed president John Williams and Fed governor Michael Barr have similarly indicated additional rate increases could be warranted, with markets now pricing in over 60% odds of a second hike in October.
Treasury yields are rising as investors price in persistent inflation above the Fed's 2% target, energy prices, and AI-driven debt issuance, creating a dilemma for policymakers. Fed officials are reconsidering whether inflation shocks are temporary and markets now expect multiple rate hikes in late 2024 and 2025, though some officials counsel restraint and caution against locking in pre-set guidance.
U.S. Treasury yields surged to fresh two-decade highs Thursday, with the 30-year bond reaching 5.47% and the 10-year climbing to 5.18%, driving mortgage rates to 7.37%. Oil prices jumped above $107 per barrel amid uncertainty over U.S.-Iran negotiations, while Fed officials signaled potential further rate hikes as input costs surge.