#FedSeesTreasuryMarketFunctioningWell

Fed Sends Reassurance Message to Bond Market: "Market is Operating Normally"

Minneapolis Fed President Neel Kashkari responded to concerns about rising Treasury bond yields by stating that markets are "operating normally." Speaking on CBS's Face the Nation program, Kashkari said that trading is continuing and liquidity is present in the market, therefore the Fed can focus on using the policy rate as its primary tool to reduce inflation.

Kashkari noted that despite the 10-year Treasury yield closing around 4.73% last week and 30-year yields near their highest levels since 2007, he does not expect this movement in the bond market to affect monetary policy discussions. He stated, "While current yield levels are higher than the average of recent times, they are considerably lower than the levels of the 1990s." He emphasized that the management of the Treasury market is the responsibility of the Treasury Department, while the Fed's role is to combat inflation.

However, Kashkari did not hide his concerns about inflation. He stated that the conflict with Iran and rising energy prices were worsening the inflation outlook, and that his confidence in inflation returning to target was diminishing as the conflict dragged on. "We keep saying inflation will return to target, but this timeframe is constantly being delayed. We've been saying the same thing for five years," he said.

Kashkari was one of three members who voted for an interest rate hike at the July FOMC meeting. He said he had not yet made a decision for the September meeting and would be looking at upcoming data. The minutes from the Fed's July 28-29 meeting revealed that many officials considered that additional rate hikes might be necessary if sufficient inflation reduction was not achieved.

While Treasury Secretary Scott Bessent's decision on August 19 to double the limit on long-term bond repurchases provided temporary relief to the market, 10-year yields closed the week at 4.73%, returning to pre-repurchase levels. This indicates that the pressure on the bond market is more structural. The US debt exceeding $40 trillion, the budget deficit reaching $2.1 trillion, and massive corporate borrowing for AI infrastructure continue to put upward pressure on long-term interest rates.

For Gate users: Despite Kashkari's reassuring statements, structural pressures in the Treasury bond market (increasing debt, high deficit, geopolitical risk) persist. While discussions about interest rate hikes continue among Fed officials, the impact of volatility on the long end of the bond market on crypto assets remains closely monitored. The upcoming Jackson Hole meeting and the September FOMC decision will be decisive for the short-term direction.

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