Analysts warn that markets are misreading Fed officials’ comments, and the central bank could still raise interest rates


Federal Reserve Chairman Jerome PowellKevin Deitch/Getty Images

  • An analyst at Barclays Bank said that the markets misinterpreted the Federal Reserve’s recent words.

  • “Markets have read a lot of the recent Fed talk that suggests these higher rates may have done some heavy lifting.”

  • If the strong US economy pushes interest rates higher, the Fed may have to raise interest rates again.

There have been a slew of comments from Fed officials in the past few weeks suggesting that rising bond yields have tightened financial conditions, making further rate hikes unnecessary.

But Megan Graeber, global co-head of debt capital markets at Barclays, is not convinced.

She said this in an interview with Bloomberg TV on Tuesday Markets were in a “daily tug of war” with decision makers On the path to raising interest rates in the future.

“I think there were a lot of signals that were misinterpreted this month,” she said. “I think the real question on my mind is what Powell and other members of the Fed choose to message this week before the blackout in the context of what continues to be a rapidly evolving backdrop.”

Federal Reserve Chairman Jerome Powell is scheduled to speak on Thursday at the Economic Club of New York, before the central bank enters a quiet period ahead of its next interest rate hike decision in November.

Graeber said the latest readings on the labor market, consumer prices, producer prices and consumer sentiment represent a “strong dose of reality for the market.”

“All of this combined plays a role in how markets respond, particularly on interest rates,” she said. “But I think we’ve read a lot into the recent Fed talk that suggests these higher rates may have done some heavy lifting.”

It’s called Fedspeak Spreading optimism in the markets The central bank will temporarily stop raising interest rates.

This is because higher bond yields have raised borrowing costs throughout the economy, from mortgages to corporate debt.

“I think what the market has failed to take into account is the nuance of ‘why.’ Why are financial conditions tighter?” Graeber said. “If the strength of the economy is fueling these long-term interest rates, they may actually need to do more.”

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