(Bloomberg) — U.S. bond-market expectations for inflation surged from a sharp decline earlier in the day, jumping by some 8 basis points to be higher on the day after Federal Reserve Chair Jerome Powell indicated that monetary-policy tightening would still be gradual even as officials signal that three hikes may come in 2022.
The so-called five-year breakeven rate on Treasury inflation protected securities — or the difference between those yields and the ones on typical Treasuries — fell to the day’s low of 2.64% after the Fed wrapped its two day meeting and announced that it would accelerate the wind-down of its bond-purchasing program. But the gauge soon reversed course and rose to as high as about 2.72% as Powell during his post-meeting press conference didn’t gin up more fears that it would move quickly to normalize monetary policy.
The Fed will take the steps it has to take “in a thoughtful manner,” Powell said.
Some bond-market participants were concerned that Powell would signal that officials had discussed actually considering a reduction to the size of its balance sheet before too long. That didn’t happen, giving more upside room for bond traders to price into the inflation outlook.
“Coming off the hawkishness of the three hikes, the press conference was not hawkish,” Jeffrey Rosenberg, senior portfolio manager for systematic fixed income at BlackRock Inc., said on Bloomberg Television.
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