New York Fed President Williams said Wednesday that the recent rise in U.S. Treasury yields is a product of a strong economy, not market dysfunction.
In an interview with CNBC, central bank policymakers declined to say whether they thought a rate hike was necessary, adding that they were still collecting economic data.
“I think we’ll have to wait and see,” Mr. Williams told CNBC’s Steve Reisman in a “Squawk Box” interview from the New York Bank’s headquarters in lower Manhattan. “There is currently no clear indication whether current monetary policy will be sufficient to ensure inflation is back on target over the next year or two, or whether further action will be needed to do so.”
“The recent (inflation) data is encouraging towards that, but again we can’t just look at one or two months. We need to look at the big picture and consider all the different information we have,” he added.
The biggest story in financial markets lately is that U.S. Treasury yields have risen to multi-year highs, especially in long-term interest rates, where investors price in expectations for inflation and economic growth.
As the situation continues, traders are increasing expectations that the Fed will raise rates at its Sept. 15-16 meeting, with the probability of a rate hike at about 66% as of Wednesday morning, according to CME Group’s index.
Although investors are concerned about inflation, Williams said he sees the movement in the U.S. Treasury market as a result of the solid economic outlook.
“This is being driven primarily by…a really strong U.S. economy and a strong economic outlook supported by huge investments in AI, data centers and technology in general,” he said. “So I don’t think it’s actually that financial conditions influence the economy, but rather that the economy influences financial conditions.”
Williams added that he sees inflation expectations as “firmly stable” this year despite rising prices related to tariffs and the Iran war.
As president of the New York Fed, Mr. Williams is a permanent vote on the Federal Open Market Committee, which sets interest rates.
