New York Fed's Williams Says Rising Treasury Yields Reflect Economic Strength, Not Inflation Fears
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The Facts
- New York Fed President John Williams said Wednesday that rising long-term Treasury yields reflect a strong economy rather than inflation fears.
- Williams attributed the yield increase to large investments in artificial intelligence, data centers and technology.
- Williams said he is taking a "wait-and-see" approach and did not commit on whether a rate hike is needed.
- The Federal Reserve's next policy meeting is scheduled for September 15-16.
- Investors sharply increased bets on a September rate hike after Fed Chair Kevin Warsh's Jackson Hole speech.
- CME Group data showed markets pricing a 70% chance of a September hike, up from 37% a week earlier.
- The benchmark 10-year Treasury yield reached its highest level since October 2023.
- Fed Governor Michael Barr said Tuesday he would support a rate hike if inflation does not ease.
- The Fed's Beige Book reported economic activity increased modestly and prices rose moderately in recent weeks.
- Treasury Secretary Scott Bessent doubled long-term debt buybacks as yields surged last month.
Context
Why does it matter whether yields are rising because of growth or because of inflation?
Williams said the move is coming mainly through higher real interest rates — the return after expected inflation — rather than through inflation compensation, which he reads as a sign of economic strength rather than eroding confidence in price stability Aol,Reuters. If instead markets were pricing in persistent inflation, that would strengthen the case for the Fed to raise rates; Governor Michael Barr said he would back a hike if inflation does not ease Investing.com,mint. Higher long-term yields also raise government borrowing costs on a rising national debt Reuters.
What is still unresolved ahead of the September meeting?
Williams has not committed to a position, saying he is still collecting information CNBC,Reuters, and the Wall Street Journal reported he does not see clear-cut evidence yet that a hike is required WSJ. Bank of America analysts said the August jobs report is unlikely to be decisive and that the Consumer Price Index release is the key input for whether the Fed follows through Business Insider. Some market participants remain unconvinced a September hike will happen elEconomista.es.
What other factors are being cited as pressures on inflation and yields?
Williams pointed to tariffs and the Middle East conflict as major drivers of inflation remaining above the Fed's 2% target, while saying inflation expectations remain contained Investing.com,Yahoo! Finance. Rising oil prices tied to the Iran war have climbed alongside Treasury yields mint,Investing.com. The Fed's Beige Book cited heightened uncertainty over energy prices, policy and international conflict Aol,Hindu.
Where Left and Right agree, and where they split
- Where Left and Right agree
- The jump from 37% to 70% odds traced to Fed communication rather than new inflation data — both readings treat what officials say in advance as consequential.
- Where Left and Right split
- Whether the story is about workers absorbing the cost of a hike no evidence yet justifies, or about a central bank keeping the promise it publicly made.
- Why they won’t converge
- This is a trust-in-institution divide, not an empirical one: one side treats a policymaker's discretion as honesty about uncertainty, the other treats pre-announced commitment as the only source of currency credibility, so identical yield data confirms both readings.
- Watch for
- Watch whether Warsh follows through with an action investors read as both consistent with his Jackson Hole words and independent of Trump's wishes — Reuters frames this as his credibility test — and whether Barclays' two-hike forecast holds.Yahoo! Finance, Reuters, Investing.com
How left and right read it
Before anyone tightens, the burden should fall on those who want higher rates to show that workers must pay for it. Williams reads the climb in long-term yields as a strong economy driven by investment in AI, data centers and technology — not inflation fear — which is why his wait-and-see stance is the honest one. Market odds jumped from 37% to 70% on a speech, not on evidence. Bets are not data.
A currency keeps its credibility only when a central bank says in advance what it will do and then does it. Barr's conditional pledge to back a hike if inflation does not ease is exactly that discipline, which is why markets repriced from 37% to 70% odds after Warsh's Jackson Hole speech. Wait-and-see is not a standard. If inflation has not clearly eased by September 15-16, what argument is left for holding?
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