Growing Hard Landing Warning... US 10-Year Treasury Yield Approaching 4%

[Asia Economy New York=Special Correspondent Joselgina] As the Federal Reserve's (Fed) high-intensity tightening is expected to continue for a long time, warnings of a hard landing are growing louder. Following the 2-year Treasury yield, which is sensitive to monetary policy, the 10-year Treasury yield is also approaching 4%.

Former U.S. Treasury Secretary Larry Summers said in a video interview with the Wall Street Journal (WSJ) on the 27th (local time), "Unless a miracle occurs on the supply side, the possibility of a hard landing is high."

He added, "I don't know why anyone thinks productivity will increase significantly," and evaluated, "I supported the Inflation Reduction Act (IRA), but none of these have serious arguments related to this." Regarding the Fed's earlier projection that inflation would reach the 2% target within two and a half years and that the unemployment rate would peak and then recover, he pointed out, "The probability of both happening at the same time is less than one-quarter."

William Dudley, former president of the New York Federal Reserve Bank, also diagnosed in an article on the same day that "the Fed is downplaying the pain from the fight against inflation." Dudley criticized the Fed's recently released economic outlook as very optimistic. He also expressed concerns about a potential recession, noting that the unemployment rate has never risen more than 0.5 percentage points without a recession. The Fed's economic outlook previously projected the unemployment rate to rise from 3.8% this year to 4.4% next year. Ultimately, Dudley argued that avoiding a recession will be difficult and that a division within the Fed over growth and inflation is inevitable.

Amid daily remarks from Fed officials supporting further rate hikes, concerns have also emerged that the pace of increases may be excessive. Charles Evans, president of the Chicago Fed, said in an interview with CNBC Squawk Box Europe that there is a fear among investors that the Fed is not waiting long enough to properly assess the impact of rate hikes, and he stated, "I am somewhat worried exactly about that point."

Evans said, "We moved quickly. We decided on three consecutive 0.75 percentage point increases, and it is said that 4.25-4.5% is possible by the end of the year," adding, "There won't be much time to review monthly." However, he cautiously mentioned optimism that the U.S. economy could avoid a recession if there are no further external shocks.

On the same day, Neel Kashkari, president of the Minneapolis Fed, also said, "I recognize that excessive tightening can cause problems." However, Kashkari judged that the recent pace of Fed rate hikes is appropriate for easing inflation. James Bullard, president of the St. Louis Fed and known as a hawk, stated that the Fed should raise rates to 4.5% by the end of the year and maintain that level for some time. He emphasized that the Fed's credibility being threatened by high inflation is a serious risk and that an appropriate response is required.

On this day, the U.S. 10-year Treasury yield surged to as high as 3.992% intraday. It is expected to surpass 4% soon. According to FactSet, the last time the 10-year yield was in the 4% range was in 2008. The 2-year yield, sensitive to monetary policy, hovered around 4.3%.

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