Tighter financial conditions could leave less for Fed to do, Logan says
© Reuters. FILE PHOTO: An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File PhotoDALLAS - The recent rise in long-term U.S. Treasury yields and tighter financial conditions more generally could mean less need for the Federal Reserve to raise interest rates further, Dallas Fed President Lorie Logan said on Monday.
Since the U.S. central bank last raised its policy rate to the 5.25%-5.50% range in July, long-term Treasury yields have risen sharply, making borrowing more expensive and acting as a brake on what has been surprisingly strong economic growth and job gains. "If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed funds rate," Logan said."However, to the extent that strength in the economy is behind the increase in long-term interest rates, the FOMC may need to do more."
"The expectation of lower Federal Reserve asset holdings over time implies that other investors will need to hold more long-duration securities, which appears to be one factor among the many contributing to higher term premiums," Logan said.
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