US Treasury Sell-Off Sparks Call for Fed Rate Hike to Tame Inflation

A sell-off in US Treasuries this week highlighted the need for the Federal Reserve to demonstrate its commitment to fighting inflation through interest rate increases, according to St Louis Fed president Alberto Musalem.

Musalem expressed a preference for a quarter-percentage-point interest rate hike at the most recent policy meeting, which left rates unchanged. Three out of 12 members of the Federal Open Market Committee (FOMC) dissented from this decision, arguing that immediate action was necessary to bring inflation back within the Fed's 2 per cent target.

The Treasury sell-off sent 30-year yields above 5.2 per cent, a 19-year high, after the widely expected decision to keep policy on hold and hints from Fed chief Kevin Warsh that the central bank may adjust its inflation goal posts.