As if the stakes weren’t already high enough, the recent jump in bond yields is putting added pressure on Federal Reserve Chairman Jerome Powell, who delivers a keynote address later this week. All eyes will be on the bank chief during his annual speech in Jackson Hole, Wyoming, on Friday. It is the site of the Kansas City Fed’s annual retreat and often serves as a place for Fed leaders to chart their future course. Powell’s speech, scheduled for 10:05 a.m., could touch on any number of topics, including his views on the state of inflation, near-term policy implications and whether the economy is still on track for a “soft landing.” a number of interest rate hikes. These are quite complex topics in themselves. But this week’s rise in the 10-year Treasury yield to its highest level in nearly 16 years raises a number of other questions, particularly about whether the move is a response to liquidity constraints, inflation fears or simply oversupply. US10Y 1Y line 10-year yield Powell rarely delves into such granular market topics, but any guidance from him on the direction of policy could have significant implications. “Strong U.S. activity, rising Treasury issuance and easing yield curve controls are driving long-term yields to multi-year highs,” Citigroup economist Andrew Hollenhorst wrote in a client note. “Powell will have to choose whether to accept the ‘higher for longer’ narrative at Jackson Hole on Friday.” What the rise in earnings means Like others on Wall Street, Hollenhorst expects Powell to tread lightly. “We think he will have little incentive to ease monetary conditions, given the tight labor market and high potential growth. Housing presents a particularly rate-sensitive upside risk to inflation that Powell sees,” he said. Bond yields are a useful guide to inflation because they represent a measure of where markets think growth, policy and prices are headed. The 10-year yield has risen sharply over the past year as the Fed has raised benchmark interest rates. The note last returned 4.33%, roughly flat in Tuesday’s session, but up more than half a percent over the past month. It came on the back of the Fed’s quarterly interest rate hike, along with rising expectations that the economy could avoid a long-awaited recession. Less certain is which direction inflation is headed. Despite the encouraging recent data, central bank policymakers are concerned about letting go of reserves too soon. Hollenhorst said he thinks the summer lull in inflation will be temporary. “More important for the Fed are the risks of a more sustained rise in inflation later this year or in 2024,” he said. “First and most obviously, tight labor markets and persistent wage pressures are unlikely to allow services prices to cool. Second, demand for goods is picking up again.” More interest rate hikes to come? Powell will likely provide some updates on the state of play for inflation. In an unusually brief but sharply worded statement at last year’s Jackson Hole meeting, the chairman warned of “some pain” ahead as the Fed is likely to raise rates. Current conditions, including rising incomes, may point to more sustained inflation. Steven Blitz, chief US economist at TS Lombard, said he was in the same camp, saying the higher yields were a product of liquidity constraints in the bond market, but left room for another possibility. “However, the jump in revenues is increasingly likely to signal the opposite is happening—growth is picking up again and inevitably higher capital requirements,” Blitz writes. “If that’s the case, posthumously (the Federal Open Market Committee) will be allowed to lose control of the economy by slowing the trajectory of interest rate hikes that began last December, trying not to tighten too much,” he said. he added. “This will ultimately be the stuff of future Fed working papers, but it would be good to hear Powell’s thoughts on these issues on Friday.” The theme of this year’s Jackson Hole Symposium is “Structural Changes in the Global Economy”. The conference runs from Thursday to Saturday.