As yields on 10-year Treasury bonds rose nearly half a percentage point this week to just under 4.7%, BWC Chair Bill Dudley explains the reasons behind the increase in a recent Bloomberg article. Dudley attributes the rise primarily to the business cycle: economic growth has come in stronger than expected, leading markets to revise upward their long-term expectations for short-term interest rates, while the term premium has climbed above levels observed in recent years. Despite this relatively optimistic read on growth, Dudley expressed concerns about the U.S. fiscal situation and the ability of the Fed to maintain its independence.

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In a separate appearance on Bloomberg Television, he argued that the Fed’s prevailing course of action should be to tighten monetary policy later this year, pointing to the central bank’s diminished credibility after failing to bring inflation back to 2%. In his view, the case for cutting rates is weak given the risk that inflation expectations could become unanchored.

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All views expressed by members are their own and not reflective of the views of the Bretton Woods Committee.