Fed Official Downplays U.S. Treasury Selloff Risk, But September Policy Divergence Remains

BlockBeats News, August 21st. Recently, U.S. Treasury bonds experienced a severe sell-off, with long-term yields rising to their highest level since 2007. However, Federal Reserve officials have downplayed concerns about the market's so-called "policy credibility damage." Both San Francisco Fed President Daly and St. Louis Fed President Bullard believe that the rise in long-term Treasury yields is more due to government financing needs and the fund requirements brought by AI infrastructure development, rather than runaway inflation expectations.

However, the two have significantly different views on the September monetary policy. Daly believes that recent inflation, retail sales, and employment data have alleviated the need for further policy tightening. He stated that the current policy is in a "good state" and lacks sufficient preemptive basis for either raising or lowering interest rates. Bullard, on the other hand, is more hawkish, stating that the core inflation rate is still at a relatively high level of 2.5% to 3%, and current policy may already be close to neutral or even accommodative, hinting that he was more inclined to raise rates at the July meeting.

Currently, market expectations for a September rate hike have significantly cooled, with the probability dropping from over 70% at the end of July to around 30%. It is worth noting that neither of the two officials has a vote on the FOMC this year, and in the July meeting, three officials dissented against keeping rates unchanged, indicating that internal policy divisions within the Fed have not yet been resolved.