KC Pres George: Rise In Yields Reflects Growth Optimism

Kansas City Fed Pres George added her name to the list of FOMC officials (incl Chair Powell this week) who view the ongoing rise in long-end Tsy yields as a result of more optimism among market participants on the outlook, and not concerns about a taper tantrum.

• The key lines to this effect from her remarks today suggest no desire to shift from the current policy course in either direction: "Certainly, it is too early to discuss pulling back on accommodation ...Likewise, the notable recent rise in longer-term interest rates does not in my view warrant a monetary policy response"
• George goes on to say that most of the 10Yr Tsy yield rise in 2021 "appears to reflect an increase in the real yield...Much of this increase likely reflects growing optimism in the strength of the recovery...If this is indeed the reason that yields are increasing, they are unlikely to rise to the point of smothering the optimism that led to their increase in the first place, and measures of real yields remain deeply negative and only a touch off all-time lows."
• Also notable though for George - who is traditionally considered a hawk - the monetary easing in the pandemic has an important side effect: contributing to the "observed unnevenness" of the pandemic economy (i.e. Interest rate-sensitive sectors doing well despite broader economic weakness)