Waller Warns of Higher Interest Rates as Safety Premium Fades

Federal Reserve Governor Christopher Waller stated that there is no longer a premium for safe and liquid U.S. government debt, pushing interest rates higher.

This change in assessment means that the neutral level of interest rates has increased, with yields rising due to concerns about the U.S. fiscal situation and competition from artificial intelligence infrastructure investment.

Waller cited research from Stanford Graduate School of Business finance professor Hanno Lustig showing that this premium has been eroded over several years.

He said he is inclined to be patient on interest rates, allowing disinflation a chance, but noted that the U.S. needs to bring structural deficits closer to zero percent of GDP to grow its way out of a $40 trillion debt load.