Inflation Upside, Growth Concerns, and Yield Surges

The minutes of the July Federal Open Market Committee meeting show that most Fed members continue to see significant upside risks to inflation and that those risks may require further tightening. But despite the resilience of the economy, some FOMC members see downside risks to growth. Officials saw a great deal of uncertainty surrounding the inherent lags to monetary policy. On the moderate side, some were concerned that tight financial conditions could cause a sharper-than-expected slowdown. The next rate decision will depend on the totality of economic and inflation data. Unexpectedly resilient U.S. economic growth and fears that the Fed needs to keep rates higher for longer helped push the yield on the 10-year Treasury note to retest October levels just below 4.35%, and the highest yields since 2007.

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