Fed's Waller: Safety Premium for Treasuries 'Gone', Interest Rates Rise

US Federal Reserve Governor Christopher Waller stated that the safety premium for US Treasury debt has largely disappeared. This development, according to Waller, is pushing the neutral level of interest rates higher.

The neutral rate estimate has been raised by Waller due to the erosion of this premium over several years, as shown in recent research from Stanford Graduate School of Business finance professor Hanno Lustig.

Waller emphasized that there was no more premium for safe and liquid US government debt. He also expressed concerns about the US fiscal situation, which is contributing to rising yields on Treasury bonds.

The disappearance of the safety premium has significant implications for monetary policy, as it means that interest rates may need to be higher than previously thought to control inflation. Waller suggested that incoming data will be crucial in determining whether interest rates should remain steady or be adjusted further.