Oct 13 (Reuters) – The recent rise in US bond yields reflects stronger economic growth rather than higher inflation expectations, which remain “well anchored”, Federal Reserve Governor Christopher Waller said on Tuesday.
Yields on 10-year US Treasury debt have climbed to 24-year highs in recent days, with analysts putting that down to concerns about war-driven inflation as well as ballooning government debt and massive investment in AI.
Waller, a member of the Fed’s Board of Governors, downplayed the role of inflation in the bond selloff, putting the emphasis on economic strength, AI spending and broader concerns about debt.
“Inflation expectations are well anchored, so all of the build-up (in yields) is not coming from an inflation premium,” Waller told a Bloomberg event in Mumbai. “That’s not where it’s coming from. So it is a factor of real growth.”
He also cited academic research suggesting US government debt had lost some of its status as a global safe-haven asset over the past two years, reducing demand and potentially adding 50 to 70 basis points to yields.
“That’s another reason your rates are going to go up if you lose that convenience yield,” Waller said. “And it’s not a trivial sum. It could be like 50 to 70 basis points.”
Waller said investment in AI, including the construction of data centres, was supporting demand in the economy and could continue to do so for another two or three years, while any meaningful productivity gains were still “a few years out”.
He also downplayed the role of Fed policy in driving long-term borrowing costs, saying changes in the overnight cost of money are “not driving the 10-year yield much”.
The Fed raised rates last month and Waller recently said further increases were likely.
(Reporting by Francesco Canepa; Editing by John Mair and Andrew Heavens)
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