US Fed’s Waller says safety premium for Treasuries is gone, pushing neutral rate higher
Waller‘s comments helped push Treasury yields lower on Thursday
Federal Reserve Governor Christopher Waller has stated that the safety premium for US Treasuries has disappeared, causing neutral interest rates to rise, as reported by Reuters on September 3, 2023. Waller argued that the US needs to reduce structural deficits closer to zero per cent of GDP in order to grow its way out of a $40 trillion debt load.
He cited research indicating this premium has eroded over several years. Rising yields were attributed to concerns about the US fiscal situation, but also competition for capital from artificial intelligence infrastructure investment. Waller expressed long-held concerns about the disappearance of the safety premium for liquid US government debt, suggesting that for any given rate of inflation, higher policy rates may be necessary.
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