Fed Warns Investors: Be Prepared for Higher Yields

Dallas Fed President Lorie Logan said on Tuesday that the Federal Reserve should not “lock in” on a peak interest rate or a precise path for the rise in rates.[0] This is part of a larger effort to restore balance between demand and supply in the economy and bring inflation down to the 2% target.[1]

Logan said the Fed must remain prepared to continue rate increases for a longer period than previously anticipated if necessary to respond to changes in the economic outlook or to offset any undesired easing in conditions.[0] She also cautioned that the Fed should not tighten too much or too fast, as this could weaken the labor market more than is necessary.[2]

Similarly, Federal Reserve governor Michelle Bowman said she sees the need to keep raising interest rates and then hold them at a higher level to tackle inflation.[3] New York Fed President John Williams echoed Bowman’s sentiment, saying the US central bank has more work to do to control inflation, noting the efforts will likely require slower growth and some labor-market weakness.[4]

Wells Fargo Securities’ Michael Schumacher warned investors not to expect the Fed to act as a friend and to be prepared for higher yields, which could potentially have a negative impact on stocks. Schumacher recommended the 2-year Treasury Note as a safe investment with potential upside.[5]

In conclusion, the Federal Reserve is continuing its efforts to bring inflation down to 2%, and has indicated that it will likely need to keep raising interest rates and remain flexible in case conditions change.[0] Investors should be aware of the potential implications of higher yields.

0. “Dallas Fed’s Lori Logan looking for ‘convincing evidence’ inflation is on track to 2%” Seeking Alpha, 14 Feb. 2023, https://seekingalpha.com/news/3935789-dallas-feds-lori-logan-looking-for-convincing-evidence-inflation-is-on-track-to-2

1. “Fed’s Logan: Must be prepared to keep raising interest rates for longer than anticipated” FXStreet, 14 Feb. 2023, https://www.fxstreet.com/news/feds-logan-must-be-prepared-to-keep-raising-interest-rates-for-longer-than-anticipated-202302141608

2. “Fed’s Logan says most important risk facing central bankers ‘is that we tighten too little’” MarketWatch, 14 Feb. 2023, https://www.marketwatch.com/story/feds-logan-says-most-important-risk-facing-central-bankers-is-that-we-tighten-too-little-b15134af

3. “Fed governor estimates additional rate rises to battle infla…” MENAFN.COM, 14 Feb. 2023, https://menafn.com/1105569913/Fed-governor-estimates-additional-rate-rises-to-battle-inflation

4. “New York Fed President John Williams Said the US Central Bank Has More Work to Do to … – Latest Tweet by” LatestLY, 15 Feb. 2023, https://www.latestly.com/socially/business/new-york-fed-president-john-williams-said-the-us-central-bank-has-more-work-to-do-to-latest-tweet-by-bloomberg-4845396.html

5. “‘Fed is not your friend’: Wells Fargo delivers warning ahead of key inflation report” msnNOW, 14 Feb. 2023, https://www.msn.com/en-us/money/markets/fed-is-not-your-friend-wells-fargo-delivers-warning-ahead-of-key-inflation-report/ar-AA17roXy