Fed May Need More Than Words In Next Battle With Markets
Federal Reserve: 1, bond markets: 0. That’s more or less where it stands after Round One in the tussle over borrowing costs. But Round Two, and perhaps even Round Three, are inevitable, and they may require policy action rather than just words.
February’s bond selloff sent U.S. 10- and 30-year Treasury yields more than 30 basis points higher while governments from France to Australia saw their borrowing costs jump. Stock markets, which for years surfed the cheap-money wave, tumbled.
The selloff was driven by concerns that adding enormous buckets of government spending to a fast-recovering U.S. economy would push inflation above the Federal Reserve’s target sooner than anticipated.