Minneapolis Federal Reserve President, Neel Kashkari, addressed the recent surge in the 10-year U.S. Treasury yield (US10Y) to a 14-year high of 4.86% during a Q&A session at Minot State University on Tuesday. The increase in long-term bond yields, particularly the 10-year Treasury yield, is notable due to its lack of correlation with inflation expectations.
Kashkari expressed his confusion over this unexpected rise, suggesting several potential causes. He pointed to robust economic indicators that have been promoting U.S. growth optimism as one possible factor. Market expectations of an intensified Federal Reserve tightening drive to achieve the 2% inflation goal might also be contributing to the yield's climb. Additionally, he highlighted the implications of escalating U.S. debt issuance.
Despite several Federal Reserve rate hikes, Kashkari noted that the job market has shown resilience. He anticipates a soft economic landing with managed inflation, thus avoiding a potential deep recession.
However, Kashkari did not rule out the possibility of more aggressive measures from the Federal Reserve if the economy continues to show stronger resilience than anticipated. Despite a recent decrease in inflation, he implied that an uptick in the fed funds rate could be on the horizon should the economy continue to strengthen.
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