Markets are rife with speculation that Federal Reserve Chair Jerome Powell intentionally used his press conference to push up long-end U.S. Treasury yields and thereby tighten financial conditions—BofA Securities explicitly disagrees with this, stating that this logic neither fits the Fed's operational framework nor is likely to gain support from the FOMC.
According to BofA's research desk, in an interest rate research report published on August 7, it noted that after the July FOMC meeting, long-end Treasury yields rose significantly, and inflation breakeven rates widened. Some clients inferred from this that it was Powell's deliberate doing—their logic being that to suppress inflation, counter loose financial conditions, and temper an investment boom, Powell needed to push up long-end rates, and the press conference was his carefully designed tool.
BofA Securities rate strategist Mark Cabana and economist Aditya Bhave directly refuted this judgment in the report, believing other FOMC members would not buy into it either. The sharp rise in long-end rates and the widening of inflation expectations last week precisely reminded the FOMC of the risks involved in operating outside its direct control.
Fed Policy Framework: The Federal Funds Rate is the Core Tool
The report cited the FOMC's 'Statement on Longer-Run Goals and Monetary Policy Strategy,' noting that the statement clearly lists 'adjusting the target range for the federal funds rate' as the FOMC's primary means of adjusting its monetary policy stance. Broader tools would only be used when the federal funds rate is constrained by the effective lower bound. The statement makes no mention of long-end Treasury yields. The statement first took effect in January 2012 and was reaffirmed in January 2026.
Based on this, the report emphasized that Powell cannot unilaterally change the Fed's policy implementation methods. If he intended to promote a shift in the operational framework, he would need the support of the FOMC as a whole—a threshold that is not low.
Long-End Rates: Limited Control, Unmanageable Risks
The report further analyzed from an operational perspective why the Fed adheres to overnight interest rate tools.
The report pointed out that the Fed has direct and precise control over overnight rates, which can be flexibly adjusted through administered rates and reserve supply management, with a wealth of historical operational experience and relatively controllable rate volatility. Its limitation lies in that the transmission to long-end rates relies on market expectations for future policy paths; the Fed can only exert indirect influence through communication and forward guidance.
In contrast, the Fed's direct influence over long-end rates is extremely limited—unless it deploys large-scale asset purchase programs (LSAPs). Other influences on long-end rates are indirect, primarily transmitted through policy expectations or the term premium channel. The report specifically noted that the term premium is difficult to control precisely, carries overshoot risks, and, once out of control, its volatility could be substantial.
The FOMC Will Not Easily Abandon Controllable Tools
The sharp rise in long-end rates last week itself served as a warning signal, making the FOMC acutely aware of the potential costs of operating outside its direct control. The report judged that the FOMC is unlikely to be enthusiastic about supporting such policy tools that lack extensive experience and validation.
BofA Securities' final conclusion is concise and clear: Powell cannot unilaterally change the FOMC's operational conventions, and the FOMC will most likely continue to use the overnight rate as its core policy tool. The so-called 'four-dimensional chess' theory of manipulating long-end rates is nothing more than market overinterpretation.
