New York Fed President John Williams said Wednesday that the surge in Treasury yields reflects a strong economy rather than market stress, while declining to rule out a rate hike this month. His remarks pushed traders' odds of a hike at the Fed's September meeting higher, unsettling Wall Street.
Williams won't rule out a rate hike
Williams, who as New York Fed president holds a permanent vote on the rate-setting committee, told CNBC's "Squawk Box" that policymakers still lack clarity on whether current policy is doing enough to bring inflation back to target, or whether further action is needed. "I think that we have to wait and see," Williams told CNBC.
He added that recent inflation data have been encouraging, but that the Fed needs a fuller picture before acting.
Wall Street grows nervous
MarketWatch reported that Wall Street investors are growing nervous about a Fed rate hike, which now looks more likely after Williams's Wednesday television appearance. The shift is notable because Williams has been a leading advocate of the Fed's hold-and-wait approach on rates.
Traders have raised the odds of a hike at the Fed's Sept. 15-16 meeting to around 66%, according to the CME Group's FedWatch gauge, as Treasury yields climb to multiyear highs at the long end of the curve.
What's fueling the yield surge
Williams attributed the move to a strong U.S. economy fueled by heavy investment in AI, data centers and technology, rather than financial conditions affecting growth. He said it's the economy driving financial conditions, not the other way around.
He also said he sees inflation expectations as well anchored, despite this year's run-up in prices linked to tariffs and the Iran war.
Sources: MarketWatch (snippet-based), CNBC
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