Fed Governor Barr says inflation “too high for five years”
The yield on 10-year US Treasury bonds climbed to 4.79% on Tuesday, its highest level since January 2025, as oil prices rose above $92 a barrel on renewed strikes in the Middle East and heightened concerns over inflation.
The 10-year yield helps set the rates at which the US government borrows, and also influences the rates consumers pay on mortgages, car loans and credit cards.
The spike in borrowing costs and concerns over the pace of price increases in the US have fueled speculation that the Federal Reserve will raise interest rates later this month. In a speech on Tuesday, Michael Barr — a governor at the US central bank — said inflation had been “too high for five years” and warned that if it does not cool “then I think we should act decisively to raise rates.”
His comments came after Kevin Warsh, chairman of the Fed, said last week that policymakers would “have work to do” if they were not confident cost-of-living pressures were easing for Americans. The latest available figures show prices rose 3.4% in the year to July, above the Fed’s 2% target, though interest rates have been left unchanged for months in a range of 3.5% to 3.75%.
Warsh has remained tight-lipped about the potential path of interest rates, but investors have been monitoring comments in recent days and expectations of a rate hike this month have grown.
US 30-year mortgage rates rose to a one-year high of 6.66% on Tuesday, following the spike in bond markets. Inflation is concerning both the Fed and global investors, and is driving the increased rates — or yields — on bond markets.
Governments sell bonds, essentially an IOU, to raise money for spending, and in return they pay interest. Bond investors typically demand higher returns — or yields — if inflation is high or they expect it to be elevated in the future, and such rates tend to set the path for borrowing costs in economies around the world.
Besides inflation, investors have concerns about the amount of borrowing from governments around the world as well spending by Big Tech firms, with uncertainty remaining over the return on investment of artificial intelligence.
In the US, national debt has passed the $40 trillion mark, having doubled in just a decade under both the Donald Trump and Joe Biden administrations. After borrowing costs on 30-year US government debt hit levels not seen since 2007, Treasury Secretary Scott Bessent said the US government would buy back more debt in a bid to lower rates, though the market’s reaction to the announcement proved short-lived.
Rising rates can make borrowing and spending less attractive, which risks dampening economic growth if consumers cut back and businesses halt investment.