Harnack says higher U.S. yields reflect real rates, growth outlook
Cleveland Fed president Beth Harnack said the recent rise in U.S. Treasury yields reflects higher real rates, a stronger growth outlook, fiscal policy and competition for investor funds rather than fading confidence in disinflation.
S. Treasury yields is driven mainly by higher real rates, a stronger growth outlook, fiscal policy and competition for investor funds, rather than a loss of confidence in disinflation. She said inflation expectations remain basically well anchored, but inflation persistently above the Fed's 2% target carries real costs and may affect business planning and wage pressures. Harnack said the biggest inflation risk is the emergence of an "inflation mindset," in which the public expects higher inflation to persist.
She added that the Fed needs to keep policy restrictive to push inflation back toward 2%. On the bond market, Harnack said yield increases partly reflect repricing of Fed policy and government fiscal policy, and that heavy investment demand from AI and technology is competing with bonds for capital. S. fiscal path is unsustainable.