FOMC Participants Eyeing Tsy Yield Rises Doing Some Of Their Work (2/3)

Several Fed officials - including notably from the Board of Governors - have cited the rise in yields as the equivalent to short-end rate tightening to at least some extent, and it would be surprising if Powell were to deviate from that script. The other line from that script is that this does not preclude future hikes, particularly in an environment of above-target inflation and above-potential growth - merely that it offers scope to be patient for now. To recap some recent commentary which may find its way into Powell's communications today (we'll publish our full inter-meeting Fed Communications wrap-up early next week):

• SF's Daly explicitly said that rising bond yields were equivalent to around one rate hike, elaborating: "if financial conditions, which have tightened considerably in the past 90 days, remain tight, the need for us to take further action is diminished...When bond yields rose, we saw the probability on the November meeting go down. To me, that says the markets are understanding how we think about things and they do have the reaction function in mind.."
• Vice Chair Jefferson: "I will remain cognizant of the tightening in financial conditions through higher bond yields and will keep that in mind as I assess the future path of policy"
• Gov Waller: "Financial markets are tightening up and they are going to do some of the work for us... [higher yields will] weigh on both household and business spending.”
• Minn's Kashkari: "It’s certainly possible that higher long-term yields may do some of the work for us in terms of bringing inflation back down […] But if those higher long-term yields are higher because their expectations about what we’re going to do has changed, then we might actually need to follow through on their expectations in order to maintain those yields.”
• Dallas's Logan: “Higher term premiums result in higher term interest rates for the same setting of the fed funds rate... […] Thus, if term premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening.”