Thirty-year Treasury yield reaches 19-year high, stocks decline
Federal Reserve Chair Kevin Warsh declined to signal further interest-rate increases after the Federal Open Markets Committee reached a split decision to hold rates steady, even as inflation runs at double the central bank’s 2% goal.
At a press conference following the meeting, Warsh pointed to rising long-term bond yields as evidence that financial markets are tightening conditions on their own, without direct intervention from the Fed.
“The increase in long-term bond yields has provided us some comfort,” Warsh said. “The markets have done quite a bit,” he added. “Even while at some level we haven’t done much in 42 days.”
Warsh offered no more explicit guidance on the central bank’s rate path, telling reporters he is “resolute” about doing his job. He attributed the rising bond yields to “solid” economic output, “strong” business investment and productivity, and “solid” labor markets, and made no mention of the war in Iran.
Following the press conference, the price of U.S. government bonds sank, sending long-term interest rates higher. The yield on 30-year U.S. Treasury bonds spiked to the highest level in 19 years, and stock markets tumbled, The Guardian reported.
Warsh has also proposed changes to the Fed’s communication practices, floating that the central bank should hold fewer interest-rate-setting meetings and has mulled scaling back the press conferences held after every meeting. That practice was introduced by former Chair Ben Bernanke, who believed providing markets and the public a sense of the central bank’s thinking was probably good for financial stability and democracy, The Guardian noted.
Financiers openly worried about potential political motivations, The Guardian reported, given Trump’s demand that the Fed cut interest rates rather than raise them.
The 30-year fixed mortgage rate stood at 6.66% as of early August, according to Federal Reserve Economic Data, as long-term interest rates determine borrowing costs.