The Fed Raised Rates. Treasury Yields Kept Rising. Now What?

The Federal Reserve raised interest rates, yet Treasury yields continued climbing.That creates an uncomfortable question for policymakers.Are the Fed’s traditional tools still working the way they once did?In Episode 308 of The Secret War on Cash, Dean Heskin and Chris Agelastos of Swiss America Trading examine the latest pressure in the Treasury market and what higher yields could mean for the broader economy.Dean discusses reports that markets are pricing in a more aggressive path of future interest-rate increases as central banks respond to inflation and other economic pressures.Chris focuses on the reaction following the Fed’s recent rate move.Treasury yields did not decline significantly.If anything, the market continued applying pressure.That matters because higher rates and Treasury yields affect far more than Wall Street.They influence mortgages, housing transactions, business borrowing and economic growth.Chris notes that housing activity in the Phoenix area appears to have slowed, with homes remaining on the market longer as buyers confront elevated prices and financing costs.Higher rates also create a serious problem for Washington.The federal government already carries an enormous debt burden. As borrowing costs rise, servicing that debt becomes increasingly expensive.The Fed therefore faces a difficult balance.Keeping rates high may help restrain inflation, but it can also weaken economic growth and increase debt costs.Lowering rates too quickly risks allowing inflationary pressure to persist.Dean then turns to Switzerland.The Swiss National Bank is discussed in the program as keeping its policy rate at zero while reported inflation sits near 0.8%, inside its targeted range.The transcript also discusses expectations that Switzerland could begin raising rates during 2027.The Swiss economy cannot be compared directly with the United States.The dollar’s reserve-currency role, America’s enormous economy and Washington’s global financial responsibilities make the U.S. situation much more complicated.But Dean argues that the contrast illustrates how much fiscal room America has surrendered through persistent debt and deficits.Reserve-currency status gave the United States extraordinary financial latitude.The question is whether policymakers used too much of it.Brought to you by Swiss America Trading.Get your complimentary Secret War on Cash Report:Call or text: 1-800-289-2646https://www.swissamerica.com/social