The recent runup in U.S. long-term bond yields is puzzling, said Minneapolis Federal Reserve President Neel Kashkari on Tuesday.
“The 10-year Treasury yield has gone up quite a bit. It’s a little bit perplexing what is driving them to go up as much as they have in recent months,” Kashkari said, during a moderated discussion at Minot State University.
One explanation is that investors are optimistic that the economy is going to be stronger for the next decade than expected.
Another possible story is that investors expect the Fed to be very aggressive to get inflation down.
Others blame the debt issued by the federal government, he added.
Kashkari noted that inflation expectations haven’t risen in tandem with higher yields.
“It is that combination of factors that is a little bit puzzling right now,” he said.
Kashkari, who is a voting member of the Fed’s interest-rate committee this year, said the job market has remained resilient even with all the Fed’s rate hikes over the past year and a half.
“We feel like we’re on track for a soft landing,” he said, with inflation coming down and avoiding a deep recession.
But Kashkari said the strong economy could mean that the Fed might have to “step on the brakes harder” to get inflation down. That would mean there wouldn’t be a soft landing.
“So far, thinks are looking hopeful, but it’s too soon to declare victory,” he said.
Stocks
DJIA
SPX
were higher on Tuesday as the 10-year Treasury yield
BX:TMUBMUSD10Y
dropped 14 basis points to 4.66%.
