Federal Reserve's Kashkari: US Treasury market continues to operate normally; rising yields do not affect monetary policy discussions

According to Zhihui Finance APP, Minneapolis Fed President Kashkari has downplayed concerns over rising US Treasury yields, stating the market is functioning well and the recent surge in yields is unlikely to impact monetary policy discussions. Kashkari said in a program last Sunday: "All current indications show the US Treasury market is operating normally, trading is active, and market liquidity is ample. Therefore, we can continue to use the federal funds rate as our main policy tool to bring inflation down."

Last Wednesday, the US Treasury unexpectedly announced it would increase buybacks of long-term Treasuries. The US Treasury said it would at least double the "liquidity support buyback operations" for bonds with maturities between 10 and 30 years. Following this announcement, yields across Treasuries fell, but soon gave back the gains that came after the Treasury’s intervention, indicating investors think the Treasury’s actions may only have a short-term effect on curbing borrowing costs. Last week, the benchmark 10-year Treasury yield ended around 4.73%, and the 30-year yield remains near its highest level since 2007.

As Treasury yields remain elevated, Kashkari noted that although current US Treasury yields are relatively high compared to recent historical levels, yields were significantly higher in the 1990s.

Additionally, the next Fed meeting will be held in September. At the July meeting, the Fed decided for the fifth consecutive time to keep rates unchanged. Kashkari was one of three dissenting officials at the meeting; he supported a 25 basis point increase due to persistent inflation concerns.

Kashkari reiterated these concerns but did not explicitly say whether he would support another rate hike in September. He stated: "We need to see more data, but I don’t want to prejudge the next meeting. However, currently, I am not confident that inflation will quickly return to target."

This week, investors will closely watch Fed Chair Waller. Waller will deliver his first keynote speech at the Jackson Hole Global Central Bank Annual Meeting at 22:00 Beijing time on August 28. With the 30-year US Treasury yield staying at high levels and inflation and jobs data intertwined, the market will focus sharply on Waller’s latest statements regarding long-term Treasury yields, the anti-inflation roadmap, and the future path for interest rates.