Doves Lone, Hawks Strike Back — U.S. Treasuries Fall for Four Days as Inflation Fears Haunt Fed Officials

TradingKey - After the Federal Reserve restarted its easing cycle in September and signaled two more rate cuts this year, several Fed officials have shifted toward a more hawkish tone, leaving only Stephen Miran, the Trump-backed new Fed governor, standing alone in advocating additional aggressive easing — even pushing for 125 basis points of further cuts this year. Rising concerns over inflation risk have triggered a four-day selloff in U.S. Treasury bonds.

As of Monday, September 22, yields across multiple maturities have risen since the Fed’s 25-basis-point cut last week. The 10-year Treasury yield has climbed for four consecutive days, reaching its highest level in three weeks. The 2-year yield rose to around 3.60%.

Fed Chair Jerome Powell said last week that the rate cut was a “risk management” move due to growing downside risks in the labor market. However, with inflation still above target and trending higher, several Fed officials cooled expectations for faster or deeper easing.

Hawkish Voices Grow Louder

Alberto Musalem, a voting member this year and President of the St. Louis Fed, said on Monday there is no justification for further rate cuts this year, urging caution as monetary policy may already be approaching neutral when inflation risks are considered.

In fact, although the Fed’s quarterly Summary of Economic Projections (SEP) broadly supports an additional 50-basis-point cut this year, out of the 19 policymakers who submitted forecasts, six expect no further cuts, and one even projects a rate hike. This means officials like Musalem are far from isolated.

Beth Hammack, President of the Cleveland Fed and a future voter in the 2026 FOMC meetings, emphasized on the same day that inflation risks continue to shadow the U.S. economy, noting that inflation has now been above the 2% target for four straight years. 

She warned that further loosening could push the economy into overheating territory.

Raphael Bostic, Atlanta Fed President and a 2027 voting member, also expressed concern that inflation could remain elevated for a prolonged period. 

He added that the labor market is not in crisis, as some believe, and its true condition still needs careful monitoring.

Treasury Selloff Reflects Shifting Sentiment

Westpac analysts noted that the modest rise in Treasury yields reflects growing caution among Fed officials, who stress that upside inflation risks remain real.

Brandywine Global Investment Management pointed out that the Fed’s tone has turned relatively hawkish, compounded by the classic market behavior of “buy the rumor, sell the fact” following the rate cut, and reinforced by Chair Powell’s own less-dovish-than-expected stance last week — all contributing to higher bond yields.