Fed's Williams Links Rising Bond Yields to Strong Economy

John Williams, President of the Federal Reserve Bank of New York, believes rising long-term bond yields are not driven by inflation fears but rather a reflection of a strong US economy. In an interview with CNBC, he stated that 'what's driving it...is really a strong U.S. economy and a strong economic outlook fueled by big investments in AI and data centers and technology in general.'

Williams downplayed the idea that worries over inflation are driving a surge in borrowing costs. He indicated that higher borrowing costs, which should create restraint on economic activity, don't definitely drive the monetary policy choices of a central bank trying to get price stability back to 2%.

The Federal Reserve is expected to raise its federal funds target rate range at its September 15-16 meeting. Many central bankers have signaled alarm at the persistence of inflation over 2%, and some have called for or signaled openness to raising rates to counter price pressures.