Minneapolis Fed President Neel Kashkari voiced his uncertainty about the impact of escalating long-term Treasury yields on future rate hikes at a town hall event at Minot State University on Tuesday. Kashkari is seeking more concrete data on inflation, labor-market conditions, and wages before determining if the Federal Reserve's measures have been adequate.
Kashkari pointed to changing expectations about the Federal Reserve's actions as a possible reason for the higher yields, suggesting that meeting these expectations could be necessary to maintain the yields. He also found the recent yield increase perplexing, attributing it to either growing economic optimism or increased US government borrowing.
Three other Federal Reserve officials recently hinted that rising Treasury yields might reduce the need for additional rate hikes. Pricing in futures markets indicates less than a 20% chance of another quarter-point hike at the Oct. 31 and Nov. 1 meeting, a significant shift from Kashkari's previous prediction of a 60% likelihood of one more rate hike this year to return inflation to its 2% target without causing significant economic damage.
The president's comments reflect an ongoing debate within the Federal Reserve about the best way to respond to changing economic conditions. As policymakers grapple with these issues, market participants will likely continue to closely monitor their public statements for clues about future policy directions.
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