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“In his semiannual testimony to the Senate, Powell was sticking to the Fed’s position that any rise in inflation this year is transient,” noted Rabobank analysts.

Key quotes

“He does not expect base effects, reopening the economy or fiscal stimulus to cause a persistent increase in inflation. We would add that at the high level of slack in the labor market a domestic wage-price spiral causing sustained inflation is highly unlikely.”

“Powell also said that the move in yields reflects more confidence in the economy. For now, the Fed continues to address inflation expectations through verbal means. However, if the ‘reflation trade’ gets out of hand and longer-term interest rates rise faster and higher than the Fed considers desirable, the Fed may – even though they are not enthusiastically about it right now – have to resort to yield curve control after all.”

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