Fed official says less need for rate hikes due to high yields

ISTANBUL

Dallas Fed President Lorie Logan said Monday there could be less need to raise interest rates due to the high level of the US Treasury yields.

"Since the July meeting, the yield curve has steepened notably," Logan said during her speech at the 65th National Association for Business Economics annual meeting, noting that the 10-year Treasury yield is up roughly 90 basis points, and the five-year yield is almost 130 basis points higher.

"The decomposition of changes in yields into near-term rate expectations, long-term rate expectations and term premiums matters for monetary policy," she added.

The 10-year US Treasury yield soared last week to its highest level in more than 16 years. The measure, which plays a role in investor confidence and mortgage rates, climbed to as high as 4.887% on Oct. 6 -- its highest since 2007.

"If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed funds rate. However, to the extent that strength in the economy is behind the increase in long-term interest rates, the FOMC may need to do more," Logan explained.

"I expect that continued restrictive financial conditions will be necessary to restore price stability in a sustainable and timely way ... In my view, high inflation remains the most important risk. We cannot allow it to become entrenched or reignite," she added.