The Federal Reserve intended to streamline communication, but unexpectedly caused a communication “accident.” When the Federal Reserve “stood still” at the July interest rate meeting and tried to reduce the communication window with the market, bond investors responded with a sharp sell-off — recently, the 30-year US Treasury yield soared to 5.27%, a record high since 2007; the 10-year US Treasury yield stood at 4.7%, hitting a peak within the new year. Behind this round of turmoil in the US debt market, what is really being impacted is probably not simply the interest rate level, but rather the policy credibility that the Federal Reserve has built up over the years — the market no longer unconditionally believes that the Fed can “tame” inflation, and investors have begun to set higher prices for long-term inflation and policy risks.

The Federal Reserve intended to streamline communication, but unexpectedly caused a communication “accident.” When the Federal Reserve “stood still” at the July interest rate meeting and tried to reduce the communication window with the market, bond investors responded with a sharp sell-off — recently, the 30-year US Treasury yield soared to 5.27%, a record high since 2007; the 10-year US Treasury yield stood at 4.7%, hitting a peak within the new year. Behind this round of turmoil in the US debt market, what is really being impacted is probably not simply the interest rate level, but rather the policy credibility that the Federal Reserve has built up over the years — the market no longer unconditionally believes that the Fed can “tame” inflation, and investors have begun to set higher prices for long-term inflation and policy risks.