Economy grows ‘modestly,’ with consumers wary of rising prices: Fed

Federal Reserve Bank of New York President John Williams stated on Wednesday that the rise in long-term bond yields is not due to inflation concerns, but rather reflects a robust U.S. economy. Speaking to CNBC, Williams highlighted that the increase in borrowing costs is primarily driven by the strength of the economy, fueled by significant investments in artificial intelligence, data centers, and technology.

He downplayed the notion that worries over inflation are the main reason behind the surge in borrowing costs, emphasizing that the central bank's decisions must prioritize achieving price stability. Williams noted that rising yields are a reflection of the economy's impact on financial conditions, rather than financial conditions driving the economy.

He reiterated that the Federal Reserve's role is to ensure price stability and that they are the ones responsible for it. The central bank is expected to raise the federal funds target rate range at its meeting on September 15-16, with many central bankers considering rate hikes to combat inflation. Williams framed the upcoming decision as complex, stating that there is no clear science to determine if the current monetary policy stance is right to lower inflation to the target in the next year.

He acknowledged that trade tariffs and the Middle East war are the main reasons for the current inflation above 2%, but expects inflation expectations to remain in check. When deciding at the September FOMC meeting, the Fed President said it will depend on the data and some risks to achieve their goals. He assured that Treasury efforts to manage borrowing costs are not taken as a complicating factor by the central bank and do not fundamentally alter the bank's work to achieve its objectives.