Federal Reserve Governor Michael Barr indicated on Tuesday that he is prepared to support an interest rate hike if inflation does not ease, expressing concern about "broader price pressures taking hold." He noted that inflation has remained above the Fed's 2% target for nearly 5½ years. Barr stated that if inflation isn't moderating sufficiently, the Fed should "act decisively to raise rates," while if trends show confidence in moderation, they could take more time to assess policy. This comes as markets are pricing in about a 66% chance of an increase this month, according to the CME Group's FedWatch tool.
Barr's comments align with recent remarks from Fed Chairman Kevin Warsh, which markets widely interpreted as leaning towards a rate hike, possibly at the next policy meeting in two weeks. Barclays also expects two more Fed rate hikes this year, one in September and another in December, following Warsh's "notably hawkish" speech. Barr highlighted that consumer spending has been largely resilient, but inflation remains too high, with headline prices up 3.7% over the past year and 3.3% excluding food and energy.
The global bond markets are currently experiencing a significant sell-off, with yields rising across major economies. The U.S. 10-year Treasury yields pushed to 4.798%, the highest since January 2025, and the 30-year yield reached 5.27%. This deepening rout is attributed to energy-driven inflation, monetary tightening expectations, and worsening fiscal conditions, exacerbated by rising Middle East tensions. Japan's 10-year yield hit 3% for the first time since 1996, and European and UK bond yields also reached multi-year highs, fueling bets on imminent central bank rate increases. These global yield increases are seen as reflecting inflation and fiscal worries, with some analysts noting different forces at play, such as heightened inflation expectations in Europe and the UK, and higher real yields in the U.S. driven by strong economic growth and significant debt supply.
