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Yield curve steepening will embolden the Fed that it can continue to tighten further - ANZ

"Whether it is just in response to the weight of evidence being provided by the strong US data or instead an active decision by Fed officials to steer the market more towards its tightening profile (the ‘dots’) presented at its rate decision last month, there is little doubt that officials have turned more hawkish recently," analysts at ANZ Bank New Zealand Limited ("ANZ") note.

Key Quotes:

"Markets certainly sat up and noticed when Fed Chair Powell stated that the Fed is “a long way” from getting rates to neutral. But other officials have beaten this more upbeat drum recently too."

"Just on Friday night, Atlanta Fed President Bostic stated that “The central question in my mind is whether the apparent strength in GDP and job growth is a signal that I have materially underestimated the underlying momentum of aggregate demand,” adding that, “If that’s the case, the potential for overheating would require a higher path for rates than what I had been thinking.” 

"Together with some technical levels giving way, this has led to a meaningful push higher in US yields, and the irony in all this is that with the US yield curve steepening meaningfully, that is only likely to embolden the Fed that it can continue to tighten further."

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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