Investing.com - The apprehension among bond investors regarding a potential US recession has intensified following Federal Reserve Chair Jerome Powell's indication that policymakers may continue to raise interest rates. This concern was evident when yields on two-year Treasury bonds exceeded those of 10-year notes by up to one percentage point after short-term rates rose in response to Powell's congressional testimony. As a result, the yield curve now appears more inverted than it has been since March.
Powell’s comments might have had an even greater impact due to unexpected UK inflation data, which fueled speculation that the Bank of England may accelerate its tightening measures during its upcoming meeting. Several developed central banks have adopted a more hawkish stance this month amid worries that inflation is remaining at excessively high levels for an extended period.
According to Prashant Newnaha, a rates strategist at TD Securities Inc., the United Kingdom is signaling that it might be premature to assume central bank rate hikes have effectively contained inflation. He believes that in the struggle between growth and inflation, inflation will prevail and central banks will likely risk a significant downturn to combat rising prices.
Despite maintaining interest rates last week for the first time in over twelve months, the Federal Reserve surprised both investors and economists by forecasting two additional rate increases before year-end. In his recent congressional testimony, Powell reinforced this message while emphasizing that most US policymakers anticipate further hikes will be necessary with inflation remaining well above their 2% target.
Back in March, concerns about potential banking crises involving several regional lenders led some experts to think that the Federal Reserve would start reducing interest rates; however, current market reactions indicate growing unease about future economic stability.