WASHINGTON (Reuters) – The recent rise in U.S. Treasury bond yields is a proper market response to the country’s expected rapid growth and expectations for stronger inflation, St. Louis Federal Reserve president James Bullard said on Thursday.
“With growth prospects improving and inflation expectations rising, the concordant rise in the 10-year Treasury yield is appropriate,” Bullard said in remarks prepared for delivery to an economic forecasting seminar organized by Georgia State University.
Even with the recent increase of roughly 40 basis points in the interest rate on the 10-year bond, to around 1.3%, the yield still remains below its pre-pandemic level.
Far from making central bankers nervous about tightened financial conditions, Bullard said the fact that investors may be demanding higher yields to offset higher expected inflation “would be a welcome development” for a central bank hoping to push inflation higher.
Bullard’s remarks rehashed his largely optimistic outlook for the U.S. economy this year, with the pandemic expected to ease and households in shape to spend.
Available savings “continue to be exceptionally high,” Bullard said, anticipating that any further fiscal aid will likely be spent more quickly as more households emerge from self-imposed quarantines and businesses open more fully.
(Reporting by Howard Schneider; Editing by Chizu Nomiyama)
