New York Fed President Williams: “Sharp Rise in U.S. Treasury Yields Driven by Strong Economy and AI Investment”

【Financial News, New York — Correspondent Lee Byung-chul】  As long-term U.S. Treasury yields have surged to their highest levels in years, John Williams, president of the Federal Reserve Bank of New York (FRBNY), identified the strong United States economy and investment in artificial intelligence (AI) as the main drivers of the sharp increase. He said large-scale investment centered on AI and data centers is lifting the United States’ growth outlook and pushing up long-term yields, rather than fiscal deficits or market dysfunction. However, he declined to say whether another rate hike would be necessary at the Federal Open Market Committee (FOMC) meeting scheduled for the 15th and 16th.
According to U.S. business news outlet CNBC on the 2nd local time, Williams said in an interview that the biggest factor driving the recent surge in U.S. Treasury yields was “a strong United States economy and a strong economic outlook.” He added, “Large-scale investment in AI, data centers and technology more broadly is supporting this.”
Yields have been rising sharply in global bond markets recently, led by long-term government bonds. The increase has been particularly pronounced in long-term yields, which are sensitive to the outlook for future economic growth and inflation.
Williams rejected the interpretation that the rise was the result of market dysfunction or tighter financial conditions. “It’s not so much that financial conditions are affecting the economy as it is the economy affecting financial conditions,” he stressed.
In other words, a strong United States economy and expanding AI investment are raising growth expectations, which is driving up long-term Treasury yields. This differs somewhat from the market view that the recent surge in long-term yields is attributable to the United States’ massive fiscal deficits and national debt, as well as inflation concerns.
Williams assessed that inflationary pressures have increased this year because of tariffs and the war in Iran, but said medium- to long-term inflation expectations remain “well anchored.” He nevertheless took a cautious stance on whether the Federal Reserve System (Fed) should raise interest rates further.
“I think we need to wait and see,” Williams said. “At this point, there is no clear signal showing whether monetary policy is currently restrictive enough to bring inflation back to the target level over the next one to two years, or whether additional action is needed.”
Regarding recent inflation data, he called the figures “encouraging,” but emphasized, “We can’t look at just one or two months of data. We need to understand the overall picture and consider all the information we have.”
Markets are rapidly pricing in the possibility of another Fed rate hike. According to CME Group, the probability of a rate hike priced into the interest-rate futures market for the September FOMC meeting had risen to about 66% as of that morning.




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