The U.S. government bond market is signaling that the Federal Reserve will be able to raise interest rates to keep inflation in check without stifling growth in the world’s largest economy.

Real yields, the returns investors can expect to earn after accounting for inflation, have jumped sharply, a sign that traders expect the U.S. economy to continue expanding for years to come, even as policymakers pull back on stimulus to slow prices’ strong growth .

The yield on 30-year inflation-protected securities (Tips) — which represents the real yield on the 30-year U.S. Treasury note — crossed zero on Friday for the first time since June 2021. It closed last year at minus 0.47 cents, according to Bloomberg data.

Investors said rising real yields and relatively stable inflation expectations suggested the Fed was well-positioned to tighten monetary policy without hindering the recovery from the pandemic.

“The Fed’s grip on the economy has just increased,” said Robert Tipp, head of global bonds at PGIM Fixed Income.

According to investors, the market move is a recognition of the strength and strong outlook of the U.S. economy.

2021, U.S. economy rebounded from a historic pandemic-induced recession with the fastest annual growth rate since 1984. A vaccine, a return to work and strong federal stimulus have all supported the rebound. But until recently, that wasn’t reflected in the Treasury market.

“Real rates are ridiculously low compared to economic fundamentals. So it only makes sense that they should rise,” said Gregory Whiteley, portfolio manager at DoubleLine Capital.

Friday’s much stronger-than-expected jobs data was just the latest in a string of indicators of the recovery.

closely watched usa payroll report It showed the economy added 467,000 jobs last month despite a recent increase in Covid-19 cases. It also included sharp upward revisions to November and December employment data and showed wage growth was stronger than expected.

The market responded by pushing U.S. Treasury yields higher, with the 10-year yield hitting its highest level since January 2020.

A strong jobs report could push inflation expectations higher: More jobs and higher wages give workers more money to spend, boosting demand for goods that are scarce due to supply chain issues.

Instead, traders agreed that the Fed has more room to raise interest rates and cool the economy. The market measure of inflation expectations over the next five, 10 and 30 years, the breakeven ratio, has remained largely stable.

As a result, they ended the week raising the number of Fed tightenings this year to five from four to five the day before.

“Either the entire inflation market doesn’t get the memo, or they get the memo that says inflation will be back to normal by the end of the year,” Chris McReynolds, head of U.S. inflation trading at Barclays, said Thursday.

Long-term break-even yields are “very well-controlled. There is no consideration of ongoing inflation levels,” he added.

Real interest rates are still below historical norms: Yields on five-year and 10-year tip bills are still below zero. If real interest rates don’t move further — or inflation expectations don’t change — yields on traditional Treasuries are likely to stay low even if the Fed raises rates.

While consumer prices are expected to rise at a 40-year high in January, there is evidence that momentum may finally begin to wane.

Economists polled by Bloomberg forecast core consumer inflation, which strips out volatility in the energy and food sectors, to rise at a slower pace in January than in December. Barclays economists pointed to price pressures on clothing and used cars tempering the shift in expectations.

“I believe the Fed missed the whole inflation issue, they took too long to insist it was temporary. But that’s 2021,” said Andy Brenner, head of international fixed income at NatAlliance Securities. “I do believe that inflation will subside.”