Neel Kashkari, president of the Minneapolis Fed, said the U.S. Treasury market is still functioning well and the recent surge in bond yields is unlikely to affect the Fed's monetary policy considerations. Speaking on CBS's Face the Nation, he said every signal indicates the market has liquidity and is trading normally, which allows the Fed to focus on its policy rate to bring inflation down. The 10-year Treasury yield closed last week around 4.73%, while the 30-year yield was near its highest level since 2007, but Kashkari pointed out that yields were significantly higher during the 1990s. At the Fed's latest meeting on July 28-29, the FOMC held rates at 3.50-3.75% for the fifth consecutive time, with three members including Kashkari voting for a 0.25% rate hike because of concern that inflation has been above the 2% target for more than five years. Investors are watching the Jackson Hole conference on August 27-29 and the speech by new Fed Chair Kevin Warsh on Friday, August 28, to assess plans for tackling inflation amid the surge in bond yields.
Kashkari says yield surge unlikely to affect Fed policy, reducing chance of rate hike, so policy rate stays lower.
Fed official downplays yield surge, suggesting no policy response, so yields may stay elevated or rise further.
