The two-year rose 23 basis points this week after several Fed speakers put an emphasis on not being sure if they are done hiking rates. I suspect they used this language, not because of a changing opinion about pausing (the economic data has been weak since their November 1st meeting in manufacturing and service ISM surveys, jobs, wages, and continuing unemployment claims), but because they wanted to arrest the easing of financial conditions (bond yields down and stocks up) triggered by their dovishness last week.

Keeping financial conditions tight with their “jawbone” has been used as a substitute for higher Fed Funds rates in the last few months. They will continue this jawboning until economic data weakens more decisively. Once the Fed sees the consumer slowing down (or labor softening further), they will be more confident that inflation will fall from the demand-side (as opposed to waning pandemic effects) and can stop trying to keep Treasury yields in a range.