Christopher J. Waller, a Federal Reserve Governor and a voting member of the Federal Open Market Committee (FOMC) in 2026 through his permanent seat on the Board of Governors, said the surge in long-term US Treasury yields is cooling demand and doing “a little bit of the work” of tighter policy.

Speaking at Bloomberg’s New Economy Forum in New Delhi on Tuesday, he stressed that this isn’t the Fed’s intention. He didn’t dispute the effect either, and when asked whether higher yields hit interest-sensitive sectors like housing and autos, he answered: “Yeah, of course it is.” Higher yields, in other words, are tightening conditions without the Fed lifting a finger. He added that real yields reflect the impact of real growth.

Turning to AI, Waller warned that the build-out is starting to push up inflation through greater demand, and that this pressure could last two to three years. The Fed, he said, will have to decide how to respond to that demand.

Yet he also said AI could contribute to widening GDP per capita. On Fed independence, he was blunt: Trump is a threat, but he isn’t succeeding so far. Waller said he has faith that Congress and the courts will protect the central bank.

Key Quotes:

Financial Conditions

  • When yields go up, is that going to impact interest-sensitive sectors like housing and autos and other things? Yeah, of course it is

  • Real yields reflecting impact of real growth

Inflation

  • AI is starting to affect inflation because of greater demand during the build-out period; could last 2-3 years

Monetary Policy

  • We’ll have to decide how we respond to increased demand associated with AI build-out

AI & Productivity

  • AI could contribute to widening GDP per capita

Fed Independence

  • I have faith in Congress and the courts will protect Fed independence

  • Trump is a threat to Fed independence, but he is not succeeding so far

Treasury

  • The surge in long-term US Treasury yields is helping curb demand in interest-rate-sensitive sectors such as housing and automobiles, doing some of the work of tighter monetary policy

  • Higher yields are not the Fed’s intention but are “doing a little bit of the work”