MNI: Higher Yields Reduce Need For Fed Tightening - Collins

The rise in the 10-year Treasury yield, corporate bond yields and mortgage rates are tightening financial conditions and if it persists that will reduce the need for further Federal Reserve policy tightening, Boston Fed President Susan Collins said Thursday, striking a less hawkish tone than the day before.

"Importantly, the rise in long-term yields implies some tightening of financial conditions. If it persists, it likely reduces the need for further monetary policy tightening in the near term," Collins said in prepared remarks. "This reinforces my view that we are very near, and perhaps at, the peak federal funds rates for this tightening cycle."

The 10-year Treasury yield has moved up noticeably since September and remains up on net, though it retreated a bit this week, she said. "Several factors may be driving these overall gains in long-term yields, and it will be important to see whether the increase is sustained, especially given the rate volatility in recent days."

(See: MNI INTERVIEW: Fed Done Hiking, Will Cut As Soon As Q1-Tilley)

Collins said the current phase of the monetary policy requires patience and a holistic assessment of available data. "I expect we’ll need to hold rates at restrictive levels for some time – until we see evidence that inflation is on a sustained path back to 2 percent."

There has been some progress on inflation, but it is still too high, she said at a Boston Fed event with community bankers. "Given the persistent strength in economic activity, it is too soon to determine whether the slowdown in price growth will continue."