A member of the Federal Reserve Board of Governors (the US central bank), Christopher Waller, said that yields on Treasury bonds rose due to concerns about the financial situation of the United States, in addition to the escalating competition for capital from artificial intelligence infrastructure investments, noting that the “safety premium” that US government bonds enjoyed had declined.
Waller added, during the Reuters Next event in Washington on Thursday, that investors no longer receive a large additional premium for holding US government debt, which has always been considered one of the safest and most liquid assets in global markets.
He said that this shift prompted him some time ago to raise his estimates of the neutral interest rate, which is the level that neither stimulates nor restricts economic activity.
Waller explained that the rise in the neutral interest rate estimate means that interest rates may need to remain at higher levels for the same level of inflation, adding that this may mean that monetary policy “is not as restrictive as thought.”
Waller's statements come at a time when global bond markets are witnessing a repricing, with government debt yields rising as a result of concerns about deficits and government borrowing, along with increased demand for capital to finance massive investments related to artificial intelligence.
The 10-year US Treasury bond yield fell on Thursday by about 4 basis points to about 4.74 percent, and the 30-year bond yield fell to about 5.23 percent, with pressure on the bond market decreasing.
Waller's comments reflect an important shift in the debate about the future of interest rates. It indicates that the rise in long-term yields may not be the result only of monetary policy expectations, but rather of structural factors that include higher government borrowing needs and increased competition for capital.
In separate statements Thursday, Waller said he is inclined to support keeping interest rates unchanged at the Federal Reserve meeting scheduled for September 15 and 16, if upcoming inflation data shows price pressures continuing to decline. But he kept the door open to raising interest rates if inflation data came in higher than expected.
This comes as investors await US inflation data for last August, in addition to the “jobs report” scheduled to be released on Friday, in search of indicators that determine the next path of monetary policy.
Government data released on Thursday showed that the US trade deficit widened in July to its highest level since March 2025, with imports rising, driven by accelerated growth in the artificial intelligence technology sector.
The trade deficit in the world's largest economy reached $88.6 billion in July, an increase of 24.4 percent from the previous month, in light of a decline in exports of industrial supplies, compared to a jump in imports of technical products.
According to the US Department of Commerce, exports fell by 2.1 percent to $310.7 billion, affected by a decline in exports of industrial supplies, including crude oil and gold.
In contrast, imports rose 2.8 percent to $399.3 billion, driven by increased imports of computers, accessories and semiconductors.
US trade has witnessed sharp fluctuations since last year, after President Donald Trump imposed broad tariffs on goods from US allies and competitors alike.
Companies rushed to increase their imports before new waves of customs duties came into effect. Since the US Supreme Court in February overturned a slew of global tariffs imposed by Trump, companies have also rushed to recover the money they paid under those tariffs.
The repercussions of the war in the Middle East also cast a shadow on American trade, after Iran almost completely closed the Strait of Hormuz, a vital waterway for global trade and energy shipments.
The number of Americans applying for unemployment benefits rose slightly last week, an indication that there has been no fundamental change in labor market conditions by the end of last August.
The US Department of Labor said on Thursday that initial applications for government unemployment benefits rose by 2,000 applications, to 206,000 applications after adjusting for seasonal factors, during the week ending August 29.
Economists polled by Reuters had expected 205,000 applications to be recorded last week, according to Reuters.
Unemployment claims this year ranged between 189,000 and 230,000, a range consistent with what economists describe as a labor market characterized by both a slow pace of hiring and firing.
Despite strong domestic demand, employers remain reluctant to increase employee numbers as they deal with tougher trade and immigration policies.
A separate report issued by Challenger Gray & Christmas, which specializes in external recruitment services, showed that recruitment plans announced by companies increased by 37 percent during the first eight months of the year, compared to the same period in 2025.
But the company said, "These jobs do not appear to be filling quickly enough." The number of jobs that companies announced plans to eliminate increased by 58 percent during August, to 52,881 jobs. However, total layoffs announced since the beginning of the year have decreased by 41 percent, compared to the same period last year.
The decline in layoff rates contributes to supporting the labor market and the economy in general.
The Federal Reserve's "Beige Book" report, issued on Wednesday, indicated that employment rose "very slightly" in August, explaining that "strong labor demand was most evident in the manufacturing, construction and some service sectors, while the retail and hospitality sectors saw a decline in labor demand."
The slow pace of hiring has led to some of those who lost their jobs facing longer periods of unemployment. The unemployment claims report showed that the number of people continuing to receive benefits after the first week, which is an indicator of the pace of hiring, rose by 8,000 people to 1.779 million people, after seasonal adjustment, in the week ending August 22.
Unemployment claims data does not fall within the survey period on which the August jobs report is based, and therefore does not affect it.
The government is expected to announce, on Friday, that non-farm payrolls rose by 56,000 jobs last month, after falling by 23,000 jobs last July, according to a Reuters poll of economists.
The unemployment rate is expected to remain unchanged at 4.1 percent.
This recovery is likely to partly reflect an improvement in wages for workers in the education sector in local governments. However, some economists believe that the possibility of job losses, for the second month in a row, still exists, after the temporary protection system for hundreds of thousands of Haitians recently ended, which affected their work permits.
Jobs data also tends to be lower than expected in August. If there is no deterioration in the labor market, economists expect that the US Central Bank will raise interest rates, early this month, in an effort to confront inflation resulting from tariffs on imports and the war.
Federal Reserve Chairman Kevin Warsh said last week that the central bank "will face significant challenges" if policymakers do not gain the necessary confidence that inflation will fall to its 2 percent target.
