The markets now price in about a 65% chance the Fed will hike rates by 75 basis points at their September meeting, compared with about 57% on Friday when Powell made the remarks.
The two-year yield, which is particularly sensitive to interest rate expectations, was up 8 basis points from Friday’s close to 3.489%, its highest level since late 2007.
Benchmark 10-year yields were also up 8 basis points at 3.13%, but remain well below the mid-June high of 3.49%.
“While Powell provided few new signals about the fast pace in upcoming meetings, he reinforced the view that financial conditions will need to tighten further and rates will remain moderately restrictive for some time,” said Lars Sparreso Lykke Merklin, senior analyst at Danske Bank.
That has also prompted traders to raise their bets on where the Fed’s hike cycle will peak above 3.8% in May next year, from 3.6% just two weeks ago, but they have also reduced the number of rate cuts planned for 2023.
The yield curve as measured by the gap between the two-year and 10-year returns remained heavily inverted at -33 basis points. Many see a reversal as a reliable signal that a recession is coming.
In the session, the Dow Jones Industrial Average misses 0.2%a 32,219.93 units, the S&P 500 go down a 0.2%a 4,049.62 units, and the nasdaq Composite falls a 0.5%a 12,080.95 units.
Source: Ambito
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