Neel Kashkari downplays concerns over rising US Treasury yields

Federal Reserve Bank of Minneapolis President Neel Kashkari characterized markets as “orderly” and “functioning” amid a sustained climb in long-term borrowing costs, signaling that the Fed isn’t about to panic over bond market gyrations.

The message is clear: the central bank sees the yield move as driven by forces outside its direct lane, and it won’t be rushed into policy changes because of it.

What’s actually happening with yields

The 10-year Treasury yield has been hovering near 4.7%, while the 30-year yield has climbed above 5%. Those are levels the bond market hasn’t consistently touched since the mid-2000s.

Kashkari pointed to several forces pushing yields higher. Government borrowing demands, a polite way of saying the federal deficit keeps expanding, are one driver. Another is the surge in capital expenditure tied to artificial intelligence and data center construction.

He notably declined to rank these factors, treating them as overlapping contributors rather than isolating a single culprit.

The fiscal and trade policy dimension

Kashkari has been consistent in attributing the yield movement more to fiscal and trade policies than to anything the Fed is doing with short-term interest rates. In his framing, the central bank’s job is to anchor inflation expectations, not to micromanage the long end of the yield curve.

Treasury Secretary Scott Bessent initiated expanded debt buyback operations aimed at easing pressure on long-dated bonds. The buyback program amounts to the Treasury repurchasing older, less liquid bonds to smooth out market functioning.

Kashkari’s hawkish positioning

Among FOMC members, Kashkari has positioned himself as one of the more hawkish voices, advocating for modest tightening to mitigate inflation risks.

He has consistently emphasized a gradual, data-dependent approach. In practice, that means the Fed will wait for hard economic numbers, things like employment reports, inflation readings, and consumer spending data, before making any directional moves. Bond market volatility alone won’t trigger a shift.

What higher yields mean for borrowing costs

With the 30-year yield above 5%, anyone financing long-term projects, from homebuilders to infrastructure developers to tech companies building out AI capacity, is paying meaningfully more than they were even two years ago.

For equity markets, higher risk-free rates make stocks less attractive on a relative basis. When you can earn nearly 5% on a government bond, the hurdle rate for riskier investments goes up. Growth stocks, which derive much of their value from future earnings, are particularly sensitive to this dynamic because those future cash flows get discounted at a steeper rate.

Upcoming economic reports, particularly on inflation and employment, will carry outsized importance in determining whether the rest of the FOMC shares Kashkari’s composure.

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