Fed Governor Michelle Bowman acknowledged in a speech the progress made in curbing inflation. However, she quickly pointed out “inflation remains well above the FOMC’s 2 percent target.”

She highlighted the robust pace of domestic spending and the prevailing tightness in the labor market. These factors indicate that “the policy rate may need to rise further and stay restrictive for some time to return inflation to the FOMC’s goal.”

Shifting her attention to the broader challenges faced by central banks, she elucidated, “As they have confronted price stability challenges, central banks have also faced new financial stability risks.”

Specifically, she cited concerns related to the substantial fluctuations in interest rates amidst an environment characterized by sustained, heightened inflation.

Moreover, Bowman emphasized the potential risks arising from geopolitical tensions, explaining how they can instigate “greater financial market volatility.” She also underscored the indirect impacts such tensions could have, including influencing economic activity and inflation.

Full speech of Fed Bowman here.

San Francisco Fed President Mary Daly noted overnight that the risks of over-tightening versus under-tightening are currently “roughly balanced”.

The tightening of financial conditions, as indicated by surging treasury yields, may influence the extent of Fed’s policy adjustments.

Daly noted, “If that’s tight, maybe the Fed doesn’t need to do as much. That’s why I said, depending on whether it unravels, or whether the momentum in the economy changes, that could be equivalent to another rate hike.”

However, Daly remains watchful, indicating that depending on economic momentum and other variables, “that could be equivalent to another rate hike.”

Beyond domestic considerations, Daly expressed concerns about “geopolitical uncertainty,” noting its potential impact on the US economy.

The repercussions of international events on elements like oil prices and export demand are being closely monitored by the Fed. She encapsulated the Fed’s vigilant stance by stating, “It’s part of a large dashboard of data”

Minneapolis Fed President Neel Kashkari expressed a sense of bewilderment regarding recent surge in 10-year Treasury yields. He noted yesterday, “The 10-year Treasury yield has gone up quite a bit. It’s a little bit perplexing what is driving them to go up as much as they have in recent months.”

He outlined a spectrum of possible explanations, from growing investor optimism about long-term economic strength to expectations of a more aggressive Fed stance on curbing inflation. Additionally, the rise in debt issued by the federal government could be another influencing factor.

“It is that combination of factors that is a little bit puzzling right now,” Kashkari commented, reflecting the multifaceted nature of the economic signals currently at play.

The relationship between inflation and long-term yields was another topic Kashkari addressed. He acknowledged the potential of elevated long-term yields to aid in reining in inflation, saying, “It’s certainly possible that higher long-term yields may do some of the work for us in terms of bringing inflation back down.”

However, he introduced a caveat – if these yields are reflective of changed expectations about the Fed’s actions, a conformity to these anticipations might be necessary to sustain the yields.

“But if those higher long-term yields are higher because their expectations about what we’re going to do has changed, then we might actually need to follow through on their expectations in order to maintain those yields,” he added.

Looking to the immediate future, Kashkari reiterated what he shared last month, suggesting there’s a 60% chance Fed would implement one more rate hike this year.

Atlanta Fed President Raphael Bostic made a clear stance today, expressing confidence in the prevailing policy rate’s ability to bring inflation down to the desired 2% mark. In his words, “I think that our policy rate is at a sufficiently restrictive position to get inflation down to 2%.” Contrary to some speculations about further hikes, he stated, “I actually don’t think we need to increase rates anymore.”

Bostic’s comments come at a crucial juncture when the market is closely monitoring the bond market dynamics, especially recent sharp rise in Treasury yields. Responding to queries about the possible impact of rising Treasury yields on the Fed’s policy approach, Bostic highlighted that the present rates are “clearly” on the restrictive side, hinting at a visible slowdown in economic activities. He also hinted at more repercussions from the Fed’s past hikes that might manifest in the near future.

In addition to domestic economic indicators, Bostic also touched upon the geopolitical developments, particularly the recent violent episodes in Israel. Recognizing the potential of such geopolitical events to infuse further uncertainty in the global economic landscape, Bostic underscored the need for the Federal Reserve to remain agile. He emphasized the importance of being nimble and ready to adapt in light of rapidly evolving global scenarios.

Fed Vice Chair Philip Jefferson shared in a speech overnight the insights onchallenges posed by rising real long-term Treasury yields. He pointed out the complexities faced by policymakers when determining the direction of monetary policy amidst such changes.

Jefferson stated, “In part, the upward movement in real yields may reflect investors’ assessment that the underlying momentum of the economy is stronger than previously recognized and, as a result, a restrictive stance of monetary policy may be needed for longer than previously thought.”

However, he was quick to add a caveat, underscoring the nuances associated with interpreting yield movements. Jefferson added, “But I am also mindful that increases in real yields can arise from changes in investor’s attitudes toward risk and uncertainty.”

Jefferson assured his approach would be comprehensive and adaptive. “I will remain cognizant of the tightening in financial conditions through higher bond yields and will keep that in mind as I assess the future path of policy,” he noted.

Vice Chair’s will weight the “totality of incoming data in assessing the economic outlook and the risks surrounding the outlook”.

Highlighting the delicate equilibrium that is to be maintained, Jefferson encapsulated the current scenario as a “sensitive period of risk management.” Here, the dichotomy lies in “balance the risk of not having tightened enough, against the risk of policy being too restrictive.”

Fed Jefferson’s full speech here.

Dallas Fed President Lorie Logan pointed out the role of higher term premiums, noting their impact on term interest rates. “Higher term premiums result in higher term interest rates for the same setting of the fed funds rate, all else equal”.

Logan elaborated on this delicate interplay, stating, “If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed funds rate.”

Further expanding on this, Logan remarked, “Thus, if term premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening.”

This suggests a potential offsetting force; should term premiums rise, the economy could experience a natural cooling, thereby alleviating some of the pressure on Fed to intervene.

However, Logan also emphasized the importance of understanding the root causes behind shifts in long-term interest rates. “To the extent that strength in the economy is behind the increase in long-term interest rates, the FOMC may need to do more.”

Inflation, as has been the case for many months, remains a focal point of concern. Logan made it abundantly clear that inflation hovering above comfort levels is a significant risk. “Inflation remains too high, the labor market is still very strong, and output, spending, and job growth are beating expectations,” she acknowledged.

High inflation, according to Logan, is the predominant risk that requires meticulous attention. “We cannot allow it to become entrenched or reignite,” she warned.

Logan’s remarks also encapsulated a vigilant and adaptive approach to monetary policy. “I will be carefully evaluating both economic and financial developments to assess the extent of additional policy firming that may be appropriate to deliver on the FOMC’s mandate,” she affirmed.