US economy defies higher bond yields as consumer spending stays strong
This digest was compiled by AI from multiple sources — links to the originals are below.
The US economy continues to expand despite the 10-year Treasury yield reaching 5.2%, its highest level in nearly 20 years. Consumer spending remains robust, with August payrolls rising by 162,000 and the unemployment rate holding at 4.1%. Federal Reserve officials attribute the yield surge primarily to economic strength rather than fiscal concerns.
Key Facts
- The yield on the 10-year Treasury bond rose to 5.2% this week, the highest level in nearly 20 years.
- August payrolls increased by 162,000 and the unemployment rate held steady at 4.1%.
- The S&P purchasing managers' index registered its biggest monthly increase since 2022, while the services reading hit its highest level since 2021.
- Federal Reserve Chairman Kevin Warsh said economic strength is the primary driver of long-term yields.
- Cleveland Fed President Beth Hammack noted that growth numbers have been solid and corporate earnings have exceeded expectations.
Bond Yield Surge
The 10-year Treasury yield climbed to 5.2% this week, its highest level in nearly two decades. Analysts point to sticky inflation, higher oil prices, demand for AI company bonds, and a record $40 trillion federal debt as contributing factors. Ed Yardeni, chief investment strategist at Yardeni Research, said the main reason yields rose sharply is that the US economy is booming.
Economic Momentum
The S&P purchasing managers' index showed its biggest monthly increase since 2022, with the services component reaching its highest level since 2021 on strong new orders. August payrolls rose by 162,000 and the unemployment rate held at 4.1%. Hiring has broadened beyond healthcare and social assistance, with total job gains averaging 74,000 per month over the summer.
Fed Officials' Assessment
Federal Reserve Chairman Kevin Warsh said at a recent press conference that economic strength is the primary driver of long-term yields. Cleveland Fed President Beth Hammack said growth numbers have been solid and corporate earnings have come in above expectations, with markets starting to price in resilience. Philadelphia Fed President Anna Paulson described the economy as resilient with increased momentum despite tariffs and higher oil prices, citing strong consumer spending, AI investment, and a stable labor market.
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