DALY said the rise in long-term yields is a global issue that weakens their
signaling for Fed policy and that she does not see the Fed’s credibility at
risk. Short-term yields show markets understand the Fed’s reaction function and
policy is in good shape; she sees no evidence supporting an earlier rate hike.
She expects inf shocks to fade and strongly supports holding rates unchanged in
July. She warned against overlapping inf shocks but has not seen worrying signs;
recent employment and inf data have not changed the outlook and she does not
expect the labor market to push inf currently. The rise in bond yields has not
signaled policy change, and it is premature to discuss US Treasury issuance
patterns. The Fed will find a way to meet its policy objectives and will
continue to fulfill its duties regardless of Treasury actions.
