Fed's Inflation Credibility at Risk Amid Treasury Selloff

St. Louis Fed President Alberto Musalem thinks that recent developments in U.S. Treasuries signal a need for the Federal Reserve to boost its inflation-fighting credibility with interest rate increases.

Musalem, who is not a voting member of the Federal Open Market Committee this year but sits on the rate-setting body, told the Financial Times that 'earlier, incremental, gradual interest-rate action is preferable, less costly and less disruptive than potentially later, larger and abrupt actions.'

This week's selloff in U.S. Treasuries saw 30-year Treasury yields rise above 5.2%, a 19-year high, after the Fed left rates unchanged at its policy meeting.

Musalem expressed his preference for a quarter-percentage-point interest rate increase at that meeting, where three of the 12 FOMC members dissented and wanted a hike instead.