Fed’s Warsh lays out forces driving up bond yields

Federal Reserve Chairman Kevin Warsh, in a press conference following the Fed's latest meeting, explained the factors contributing to the rise in bond yields. He emphasized that a loss in confidence in the central bank's ability to control inflation is not among the reasons. Warsh attributed the increase in borrowing costs to economic strength and the surge in capital expenditures, particularly from "hyperscalers" that are raising funding in the market.

He also noted that unsettled political factors around the world are driving up credit costs. Warsh's list of factors aligns with those of New York Fed President John Williams, who had previously told CNBC that the strong U.S. economy and its outlook, fueled by big investments in AI and technology, are driving up yields. However, a direct worry about inflation or the Fed's ability to bring high price pressures back to its 2% target, as well as concerns about the sustainability of U.S. deficits, were not on Warsh's list.

The decision to raise the central bank's overnight target rate by a quarter percentage point was unanimous, reflecting market expectations of a tighter monetary policy following Warsh's comments at the Jackson Hole conference.