New York Fed’s Williams Says Treasury Yield Surge Reflects Strong Economy, Urges Patience on Rate Decision

New York Federal Reserve President John Williams said the recent jump in US Treasury yields reflects a strong economy and solid growth expectations, not stress in financial markets.

Williams told CNBC on September 2 that the rise in yields has been driven in large part by the strength of the US economy and a resilient outlook. He pointed to heavy investment in artificial intelligence, data centers and technology as key factors.

“The economy is affecting financial conditions more than financial conditions are affecting the economy,” he said. In other words, even though longer-dated Treasury yields have climbed to their highest levels in years, he does not see that as a sign of dysfunction in financial markets.

He declined to take a firm view on whether the Federal Reserve will need to raise interest rates this month. “We have to wait and see,” Williams said. There is still no clear signal on whether current monetary policy is enough to bring inflation back to target over the next one to two years, or whether further action will be needed.

Williams also described recent inflation data as encouraging, while emphasizing that more confirmation is needed. One or two months of readings are not enough, he said, and policymakers need to judge the broader picture using a wide range of information.

Markets are leaning toward a rate increase at the Federal Open Market Committee meeting on September 15-16. CME data showed traders were pricing in about a 66% chance of a September hike as of that morning.

Williams also said longer-term inflation expectations remain “well anchored,” even though price pressures have risen this year because of tariffs and the war in Iran. The New York Fed president holds a permanent vote on the FOMC, the Fed’s policy-setting body.