Fed’s Kashkari Says Rising Treasury Yields Won’t Sway Rate Decisions — BigGo Finance

Minneapolis Federal Reserve President Neel Kashkari said Sunday that the recent climb in U.S. Treasury yields does not pose a concern for policymakers and is unlikely to alter the central bank’s approach to monetary policy.

Speaking on CBS’s Face the Nation, Kashkari said the Treasury market is functioning properly, with adequate liquidity and trades executing as expected. That stability, he argued, allows the Fed to keep its focus squarely on the federal funds rate as the primary tool for bringing inflation back toward its 2% target.

Treasury yields advanced last week, with the benchmark 10-year note ending near 4.73%. The 30-year yield remained close to its highest level since 2007, a move that has drawn attention from investors and analysts watching for signals about the Fed’s next steps.

Kashkari acknowledged that current yields are elevated relative to recent history but noted they were significantly higher during the 1990s. His remarks come at a delicate moment for the central bank, which has been navigating persistent inflation pressures while markets attempt to gauge whether additional rate increases are on the table.

At the Fed’s July meeting, policymakers held interest rates steady for the fifth consecutive time. Kashkari was one of three officials who dissented, arguing in favor of a quarter percentage point increase due to concerns that inflation remains stubbornly above target.

On Sunday, he reiterated those inflation worries but stopped short of committing to another rate hike at the September meeting. “We need to see more data, but I don’t want to prejudge the next meeting,” Kashkari said. “But I’m not feeling confident right now that inflation is heading back down to target in a short period of time.”

The broader context for Kashkari’s comments is a bond market that has been signaling unease. Long-end yields have climbed for several reasons, including above-average inflation and a shift in how the Fed communicates its policy intentions.

Fed Chair Kevin Warsh, who was sworn in on May 22 as Jerome Powell’s successor, removed forward-looking guidance from FOMC meeting statements. That guidance had for more than two decades signaled whether the committee was more likely to hike or cut rates at its next meeting. Without that transparency, bond traders have been left to do more guessing about the Fed’s next move, contributing to the rise in yields on 10- and 30-year Treasuries.

The 30-year Treasury yield recently hit a 19-year high, while the 10-year yield came within a stone’s throw of matching levels last seen during the financial crisis. Warsh took the reins with trailing 12-month inflation at a three-year high of 4.2%, and although June and July data appeared to show improvement, a surprise announcement by Treasury Secretary Scott Bessent on Aug. 19 added fresh uncertainty to the outlook.

Kashkari’s comments suggest that at least some Fed officials are comfortable allowing the bond market to adjust without feeling compelled to react. His characterization of the Treasury market as functioning well implies that the rise in yields reflects shifting expectations rather than dysfunction — a distinction that matters for how the Fed interprets market signals.

That view, however, is not universally shared. The recent volatility in long-dated bonds has raised questions about whether the market is pricing in a more aggressive Fed response than policymakers intend. If yields continue to climb, the pressure on the FOMC to address the situation could intensify, particularly if financial conditions tighten enough to threaten economic growth.

For now, Kashkari’s message is that the Fed has the luxury of watching and waiting. The September meeting will provide the next opportunity for the committee to reassess the data, and Kashkari made clear he is keeping his options open.

Investors will be watching closely for any shift in tone from other Fed officials in the coming weeks. The divergence between those who favor patience and those who, like Kashkari in July, believe rates need to go higher could define the debate heading into the fall.