Rising Treasury Yields Not a Concern, But Inflation Still Uncertain

Minneapolis Federal Reserve President Neel Kashkari said Sunday that rising Treasury yields do not indicate a market-functioning problem and should not, by themselves, alter monetary policy. Appearing on CBS’s Face the Nation, Kashkari said Treasury trading remains orderly and liquid, allowing the Federal Reserve to use the federal-funds rate as its primary policy tool. The benchmark 10-year Treasury yield ended last week near 4.73%, while the 30-year yield remained close to its highest level since 2007. Kashkari nevertheless said he remains uncertain that inflation is returning quickly to the Fed’s 2% target and declined to prejudge the September policy meeting. The Fed held rates at 3.50%-3.75% in July in a 9-3 vote, with Kashkari and two other regional presidents favoring a quarter-point increase. The Bureau of Economic Analysis will release July PCE data Wednesday. Investors will also watch Fed Chair Kevin Warsh’s Jackson Hole speech Friday for additional policy signals.