Hammack says inflation expectations remain well anchored, and U.S. Treasury yields are driven by real interest rates.

Cleveland Fed President Beth Hammack stated that the recent sharp rise in U.S. Treasury yields is not due to a loss of confidence in the decline of inflation, but is mainly driven by higher real interest rates, strong economic prospects, fiscal policy, and competition for investor funds. She noted that current inflation expectations remain “basically well anchored,” but that inflation continuously above the Federal Reserve’s 2% target still imposes actual costs and could affect economic planning and wage pressures. Hammack said the biggest current risk for inflation is the development of an “inflation mentality,” where the public starts to believe high inflation will persist over the long term. She pointed out that inflation has exceeded the target level for several years, and the Federal Reserve needs to ensure monetary policy maintains a restrictive stance to bring inflation back down to the 2% target. Regarding the bond market, Hammack indicated that rising yields partly reflect the market’s repricing of Federal Reserve policy and government fiscal policy, while AI and technology sector investment demand is also competing with the bond market for investment capital. She also stated that the current U.S. fiscal path is unsustainable.