Treasury yields rise on upbeat comments from Fed’s Fischer

The vice-chairman of the U.S. Federal Reserve, Stanley Fischer gave the strongest signal yet that the central bank is closing in on meeting both of its targets. He said, while the unemployment rate declined dramatically since its peak in 2010, the core inflation is in close distance to Fed’s 2 percent target. He said, “We are close to our targets. Not only that, the behavior of employment has been remarkably resilient”. He is a permanent member of the voting committee and his speech in Colorado indicates he is among the hawkish ones at the FOMC.

Mr. Fischer pointed out that it has been remarkable that the U.S. economy has returned to near-full employment in a relatively short time despite the speed bumps like European debt crisis, 20 percent rise in the trade-weighted dollar, uncertainties in China, volatilities in the financial market and the Brexit referendum in the United Kingdom. Mr. Fischer said that this reality remains under-appreciated.

He indicated that his biggest concern has been a drop in productivity, which has now declined for the third consecutive quarter for the first time since 1979.

His hawkish comments have pushed treasury yields across the curve higher, especially the short term ones. U.S. 2-year treasury yield is up more than 4 percent today and trading at 0.78 percent. U.S. 10-year yield is up 1.2 percent. The U.S. dollar index is up 0.3 percent, trading at 94.88.