Fed’s Collins says rise in bond yields could reduce the need for further interest-rate hikes

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The recent rise in long-term bond yields could obviate the need for further interest-rate hikes, Boston Federal Reserve Bank President Susan Collins said on Thursday.

“Importantly, the rise in long-term yields implies some tightening of financial conditions. If it persists, it likely reduces the need for further monetary-policy tightening in the near term,” Collins said in a speech to community bankers at the Boston Fed.

Collins did note that the 10-year Treasury yield
BX:TMUBMUSD10Y
has retreated a bit this week.

Collins, who won’t be a voting member of the Fed’s interest-rate committee until 2025, said the recent run-up in long-term bond yields “reinforces my view that we are very near, and perhaps at, the peak federal-funds rate for this tightening cycle.”

Collins said the current economic environment calls for the Fed to be patient in order “to separate signal from noise” in the incoming data.

In September, Fed officials voted to hold interest rates in a range of 5.25% to 5.5% but penciled in one more 25-basis-point hike this year.

Collins’s remarks dovetail with those of other Fed speakers, notably Dallas Fed President Lorie Logan, who said the recent backup in rates may allow the Fed to stop hiking rates. But the view is not unanimous: Minneapolis Fed President Neel Kashkari suggested the Fed might have to follow through with another rate hike to maintain higher bond yields.

Traders in derivative markets are pretty much convinced peak rates are here. They now see see a slim 12% chance of a quarter-point rate hike at the Fed meeting on Oct. 31-Nov. 1, according to the CME Group’s FedWatch tool. They see a somewhat greater 30% chance of a hike in December.

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