Minneapolis Fed President Neel Kashkari, one of the central bank's most hawkish voices, said Tuesday he isn't yet convinced that the surge in long-term Treasury yields will reduce the need for further rate hikes, saying it depends on what has driven the recent rise in borrowing costs.
"It is certainly possible that higher long-term yields will do some of the work for us in terms of reducing inflation," Mr Kashkari said at a town hall event.
"But if those higher long-term yields are due to changes in outside expectations about our future, then we may actually need to follow their expectations to maintain those yields." "He added.
In contrast, three Fed officials have recently said that rising Treasury yields could reduce the need for further rate hikes. Futures markets are pricing in a less than 20 per cent chance of another quarter-point rate hike when policymakers meet again on October 31 and November 1.
But Kashkari said he still had reservations.
As a voting committee member this year, he wants to see more data on inflation, the labor market and wages "to convince me that we've actually done enough."
Kashkari called the recent rise in yields "puzzling" and said it could be driven by optimism about the economy or higher U.S. government borrowing over the next five to 10 years.
Another reason could be that the market expects the Fed to be more aggressive in controlling inflation over the next decade, but "it's hard for that to translate to 10-year yields going up the way they have, in my view, so it's a little confusing," he said.
Finally, Kashkari also reiterated comments he made last month, when he saw a 60 percent chance that the Fed would raise rates again this year and return inflation to its 2 percent target without causing serious damage to the economy.