Cleveland Fed president Beth Harnack said the recent sharp rise in U.S. Treasury
yields is not driven by a loss of confidence in disinflation but primarily by
higher real rates, a stronger growth outlook, fiscal policy and competition for
investor funds. She said inflation expectations remain basically well-anchored,
but inflation persistently above the Fed's 2% target imposes real costs and
could affect business planning and wage pressures. The biggest inflation risk is
an emergence of an "inflation mindset"—public expectations that higher inflation
will persist. Harnack said the Fed needs to keep policy restrictive to push
inflation back toward 2%. On the bond market, she said yield increases partly
reflect repricing of Fed policy and government fiscal policy, and that heavy
investment demand from AI and technology is competing with bonds for capital.
She added that the current U.S. fiscal path is unsustainable.
