Bond Market’s Faith in Fed Set For Biggest Test Since the 1980s
- Amid hawkish shift, yields show inflation seen manageable
- Yet investors could be rattled by next report on price surge
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Bond traders’ faith in the Federal Reserve’s power to curb inflation is about to face its biggest test in four decades.
A drumbeat from Fed officials about combating rising consumer prices intensified in recent days after Chair Jerome Powell told U.S. lawmakers that inflation has become “more persistent” and should no longer be referred to as transitory. He said an elevated inflation rate that will “linger well into next year” lays the groundwork for the central bank to discuss winding down its asset purchases at a faster pace. The market reacted by narrowing the gap between short- and long-term Treasury yields, wagering that tighter monetary policy will cool growth and bring prices under control.