Treasury yields hit multi-decade highs as the Fed keeps raising rates into an oil-driven inflation scare

The Federal Reserve raised its benchmark interest rate by a quarter of a percentage point on September 16, lifting its target range to 3.75 to 4 percent, and bond markets have kept climbing since as traders bet the central bank will raise rates again at its next meeting in October.

The move marks a hawkish turn for the Fed, which is leaning against inflation pressure from two directions at once: the costs of the massive buildout of artificial intelligence data centers and infrastructure, and the pass-through from higher oil prices and supply disruptions tied to the Middle East standoff. Federal Reserve Governor Lisa Cook said in remarks in Oakland, California, that artificial intelligence could ultimately prove disinflationary over time by making the economy more efficient, but said she still expects continued price pressure in the coming months from the AI buildout and from the oil and supply-chain effects of the conflict.

The result has been a sharp rise in borrowing costs. The 10-year Treasury yield, a benchmark that influences everything from mortgage rates to corporate borrowing, climbed as much as 11 basis points in a single session this week to 5.27 percent, its highest level in roughly 19 years, while the 30-year yield jumped to 5.55 percent. A basis point is one hundredth of a percentage point. Stocks have wobbled along with the bond market: the S&P 500 gave back its gains for the month and the tech-heavy Nasdaq 100 fell more than 1 percent in a recent session, with only defensive sectors like healthcare and consumer staples holding up.

The pressure has been felt well beyond U.S. markets. In India, the Sensex fell more than 1,100 points and the Nifty closed below 22,800 in one recent session, weighed down by the same combination of expensive oil, a weakening rupee, which has slipped past 96 to the dollar, and billions of dollars in foreign investor outflows during September, as high U.S. yields draw money back toward American assets.

Investors are watching this week's U.S. inflation and jobs data closely, along with earnings from companies including Micron and Nike, for signs of whether the economy can absorb higher rates without a sharper slowdown.

Why is the Fed raising rates instead of cutting them?

Officials are responding to inflation pressure from the costs of the AI infrastructure buildout and from higher oil prices and supply disruptions tied to the Middle East standoff.

How are higher U.S. yields affecting other countries?

Higher U.S. yields tend to pull investment money back toward American assets, which has contributed to outflows from markets like India.

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