Treasuries extend rally as Fed's Powell downplays tariff inflation impact

[Fed Chair Jerome Powell Speaks At Harvard]
Sophie Park/Getty Images News

Treasury bonds extended their surge Monday after Federal Reserve Chair Jerome Powell characterized U.S. President Donald Trump’s sweeping tariffs as a one-time price increase, signaling the central bank has limited control over supply-driven shocks like recent oil price spikes.

Yields on two- to 10-year notes (US2Y [https://seekingalpha.com/symbol/US2Y]) (US10Y [https://seekingalpha.com/symbol/US10Y]) dropped by at least 10 basis points in afternoon trading as Powell addressed [https://seekingalpha.com/news/4570250-fed-chair-powell-welcomes-thoughtful-dissents-at-fomc-meetings] students at Harvard University. The rally in the $31T government debt market accelerated during his remarks, building on earlier gains driven by concerns that escalating Middle East tensions could slow global economic growth.

Following Powell’s comments, traders largely abandoned bets on an interest-rate hike this year, instead pricing in the possibility of a cut by the end of 2026. The bond market had faced weeks of selling pressure driven by surging oil costs and fears that central banks would need to aggressively raise rates to combat inflation.

“Following Powell’s remarks, we are finally back to pricing one or more cuts as fractionally more likely than a hike this year,” said Krishna Guha, head of central bank strategy at Evercore ISI, Bloomberg reported. “The repricing has more to run, even though we are not relaxed about the prospects for a US-Iran deal.”

[Seeking Alpha]
Seeking Alpha

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