Powell: Move in yields reflects more confidence in the economy

Yahoo Finance’s Brian Cheung recaps Fed Chair Jerome Powell’s testimony to Congress addressing the rise in bond yields and the labor market recovery.

Video Transcript

KRISTIN MYERS: But I want to go back to what Jay Powell was talking about today. He did give his semi-annual testimony today in front of Congress, in front of the Senate Banking Committee [INAUDIBLE]. Brian Cheung here with us now to recap today's speech. Hey, Brian.

BRIAN CHEUNG: Hey, Kristin. Well, the outlook from the Federal Reserve chairman, the top economist, effectively, in government, was that the labor market recovery has slowed, and that now is not the time to be pulling the support. At least on the Federal Reserve's end, they have near zero rates. They've been buying about $120 billion of securities every single month to try to combat this as they try to get that bridge over to the post-pandemic economy.

But the Fed chairman specifically focused on specifically bond yields. Obviously, we've seen on the longer end borrowing costs going up, when you look at the US 10-year and the US 30-year having risen quite a lot since the Fed's last meeting at the end of January. But here's what the Fed chairman said about the reason for why we may have seen bond yields go up over the past few weeks.

JAY POWELL: We look at the whole range of financial conditions. And it's very important to ask why are rates moving up. And so, if you look at why they're moving up, it's to do with expectations of a return to more normal levels, more mandate consistent levels of inflation, higher growth, an opening economy. In a way, it's a statement of confidence on the part of markets that we will have a robust, and ultimately, complete recovery. So those are the reasons that are behind it.

BRIAN CHEUNG: The reasons behind that, so it doesn't sound like the Fed chairman is too concerned with where bond yields are, which could suggest that the Fed is not thinking about a tool like yield curve control, where the Fed might more aggressively target where bond yields are by ramping up purchases of longer term bonds until, let's say, for example, they're below a certain yield. Broadly speaking, the Fed chairman said that the job is not done. That's the thing I keep coming back to. We've got to finish the job with the pandemic. Translation-- the Fed is going to keep that easy money policy going for at least quite some time, Kristin.

KRISTIN MYERS: Now, Brian, he, of course, declined to talk too much about fiscal policy. And that was after he was told to really make sure that the Fed kind of be very targeted in their focus and stop focusing so much on things like racial inequality. But I know that Fed Chair Powell did talk about the disproportionate impact of the crisis on minority households, low income households. What did he say there?

BRIAN CHEUNG: Yeah, absolutely. I mean, this has been kind of a fine line that the Federal Reserve chairman has had to balance. On one end, acknowledging the facts of the matter, which is that most of the people that have been impacted by job losses in the middle of this pandemic are low income and in often cases minority Black families. And I think that the problem, though, for the Fed is that they can't specifically target, for example, the Black unemployment rate with the current structure that they're set up as.

So, on one hand, the Federal Reserve has to acknowledge the facts of the situation, but their tools are blunt from the perspective that they can only target the macro economy and can't geographically, for example, target interest rates in one region versus another. So the Fed chairman did say that it's something that the Federal Reserve is watching. That's why they want this labor market recovery to be as long and as hot as possible. Because the longer you run it was the experience out of the last crisis, the more you can pull in some of those more marginalized workers.

And one important stat point is if you take the population of the United States and you divide it up into four quartiles, the lowest quartile is still very deeply below employment levels pre-pandemic, whereas the top quartile, they basically almost fully recovered-- just another point that underscores the K-shaped economy.

KRISTIN MYERS: Absolutely, and of course, economists have done studies on this before and have found that tighter labor markets actually give greater boosts to some of those minority and lower income households than we see some of the folks at the top. Yahoo Finance's Brian Cheung, thanks, as always, for all of those updates.