Why are U.S. Treasuries being sold off? St. Louis Fed President: AI is competing for capital, not a credibility issue for the Fed
Alberto Musalem, President of the Federal Reserve Bank of St. Louis, stated: "There is currently capital competition between US government financing and AI development. Inflation expectations remain stable, and the credibility of the Federal Reserve has not been called into question."
Alberto Musalem, President of the Federal Reserve Bank of St. Louis, stated that the recent sell-off in the bond market has been mainly driven by increased government borrowing and rising financing demand due to artificial intelligence development, rather than doubts about the Federal Reserve's credibility.
In an interview with CNBC on Thursday, Musalem said: "There is a capital competition occurring between U.S. government financing and artificial intelligence development. Nowadays, artificial intelligence construction is being financed not only in the United States but also globally."
He stated: "Interestingly, inflation expectations remain stable, and the Federal Reserve's credibility has not been questioned."
Bonds yields may also rise when investors doubt the Federal Reserve's determination to curb inflation.
Musalem does not have a monetary policy voting right this year. He reiterated that he was inclined to support a rate hike at the Federal Reserve's July meeting in order to bring down inflation, which remains elevated. He stated that over the next 18 months, he sees a higher probability that inflation will not return to the Federal Reserve's 2% target without further rate increases.
At the July meeting, Federal Reserve officials kept interest rates unchanged for the fifth consecutive time and did not signal a rate hike in the near term. Three policymakers dissented and supported an increase. Some regional Federal Reserve officials without voting rights, including Musalem, have also indicated they would back rate hikes.
In recent weeks, investors have continued selling U.S. Treasuries, pushing the 30-year Treasury yield to its highest level since 2007.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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