Federal Reserve Kashkari: The US bond market is still operating normally, rising yields will not affect monetary policy discussions

The Zhitong Finance App learned that Minneapolis Federal Reserve Chairman Kashkari downplayed concerns about rising US Treasury yields, saying that the market is running well, and that the recent surge in yield is unlikely to affect monetary policy discussions. Kashkari said on the program last Sunday: “All current signs indicate that the US Treasury bond market is operating normally, transactions are ongoing, and market liquidity is sufficient, so we can continue to use the federal funds rate as the main policy tool to push inflation back down.”

The US Treasury unexpectedly announced last Wednesday that it will step up repurchases of long-term US bonds. The US Treasury Department said it will “at least double the scale of liquidity support repurchase operations” for bonds in the 10-30 year range. After the news was announced, US bond yields fell across the board, but the increase achieved after the US Treasury announced backstopping, indicating that investors believe that the US Treasury's measures may only play a short-term role in curbing borrowing costs. Last week, the benchmark 10-year US Treasury yield finally closed at around 4.73%, and the 30-year US Treasury yield is still close to the highest level since 2007.

While US bond yields continue to be high, Kashkari said that although US Treasury yields are currently high compared to recent historical levels, yields were significantly higher than current levels in the 1990s.

Furthermore, the next meeting of Federal Reserve officials will be held in September. At the July meeting, the Federal Reserve decided to keep interest rates unchanged for the fifth time in a row. Kashkari was one of three dissenting officials. He supported a 25 basis point increase in interest rates at the time due to concerns about continuing inflation.

Kashkari once again expressed these concerns, but did not clearly state that he would support another rate hike in September. He said, “We need to see more data, but I don't want to predict the next meeting. However, I currently have no confidence that inflation will return to target levels any time soon.”

Investors will be keeping a close eye on Federal Reserve Chairman Walsh this week. Walsh will deliver his first keynote address at the Jackson Hole Global Central Bank Annual Meeting since taking office at 22:00 Beijing time on August 28. In the current context where US 30-year US Treasury yields remain high and inflation and employment data are intertwined, the market will focus heavily on Walsh's latest statement on long-term US bond yields, anti-inflation road map, and future interest rate path.