^{Source: The Edge Malaysia}

Treasury Yields Edge Higher Amid Tariff Concerns

U.S. Treasury yields moved upward early Thursday, reflecting investor apprehension following comments from Federal Reserve Chairman Jerome Powell, who flagged rising economic risks stemming from the White House’s tariff strategy. Markets digested the implications of Powell’s warning about the inflationary pressures and potential slowdown in growth driven by trade policies.

At 3:55 a.m. ET, the benchmark 10-year Treasury note yield increased by 4 basis points, reaching 4.319%, while the 2-year Treasury yield rose over 2 basis points to 3.815%. These movements signal a shift in investor sentiment, with many now bracing for a more volatile economic outlook in the months ahead.

Powell: “Dual Mandate at Risk”

Speaking on Wednesday, Powell expressed concerns that the Fed could face a "challenging scenario" where its dual mandate—to foster stable prices and maximum employment—could come into conflict.

“We may find ourselves in the difficult position where our goals of price stability and full employment diverge,” Powell stated. “Should that happen, we’ll need to weigh how far the economy is from each goal, and the different time frames over which those gaps may close.”

These remarks come as President Biden's administration continues to explore expanding tariffs on Chinese imports—targeting sectors like electric vehicles, semiconductors, and solar panels. This echoes prior strategies used during the Trump era, which many economists criticized for disrupting supply chains and increasing input costs for U.S. businesses.

Inflation Concerns Take Center Stage

Powell’s comments reignited inflation fears. Economists warn that tariffs act like a tax on consumers, often leading to price hikes on everyday goods. Analysts at Deutsche Bank noted that, despite Powell’s concerns, the Fed is not signaling immediate action.

“The Fed seems to be taking a wait-and-see approach,” Deutsche Bank said in a client note. “Even with weaker recent economic surveys, Powell emphasized that financial markets remain orderly, albeit clouded by uncertainty.”

This cautious stance was echoed by Goldman Sachs, which recently projected that a broader tariff expansion could add 0.2 to 0.4 percentage points to core inflation over the next 12 months, depending on the scale and duration of the measures.

Market Reaction and What’s Next

Markets have remained relatively stable, but the upward move in yields reflects increasing investor skepticism. Bond traders are now pricing in a lower probability of rate cuts in the near term, as the Fed might need to stay hawkish longer if inflation accelerates.

In terms of economic indicators, investors are awaiting Thursday’s release of:

• Weekly jobless claims — economists expect around 215,000 new filings, a modest drop from the previous week.
• Existing home sales report — expected to shed light on housing demand amid high mortgage rates.
• Leading economic indicators — which will offer further signals about potential recession risks.

Final Thoughts

Powell’s remarks served as a reminder that monetary policy cannot operate in a vacuum. Fiscal decisions—such as tariffs—have ripple effects that could complicate the Fed’s path. As inflation and growth pressures mount, the central bank’s strategy will be increasingly influenced by geopolitical and trade-related developments.

Investors, analysts, and policymakers will continue monitoring the impact of trade moves on inflation, interest rates, and consumer behavior, all of which could shape the trajectory of the U.S. economy in 2025.

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