Williams: Strong Economy Drives Rising Bond Yields, Not Inflation Fears

John Williams, President of the Federal Reserve Bank of New York, attributed rising long-term bond yields to a strong US economy rather than inflation fears. 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 borrowing costs higher. He emphasized that central banks are responsible for getting price stability back to 2%, and 'nobody else can do that for us.' In contrast, rising yields could be seen as a reflection of the economy's strength rather than a negative influence on it.

The upcoming Federal Open Market Committee meeting is expected to raise interest rates, with investors anticipating a target rate range between 3.5% and 3.75%. However, Williams framed the decision as complicated, stating that 'there's no clear science' that says monetary policy is in the right position.

He also attributed current inflation above 2% to trade tariffs and the Middle East war, but expressed confidence in the data showing a move towards lower inflation. The outcome of the September FOMC meeting will depend on the data and risks to achieving the Fed's objectives, according to Williams.