Speaking with CNBC's Steve Liesman on Squawk Box from the New York Fed's lower Manhattan headquarters, Williams pushed back on the idea that the bond market is misfiring. He credited the move in Treasurys to stronger growth expectations, saying, "What's driving it, in large part, is ... really a strong U.S. economy and a strong economic outlook fueled by big investments in AI and data centers and technology in general." In his view, "it's not really about financial conditions affecting the economy. It's more about the economy affecting financial conditions."
He noted that the most pronounced moves have been at the long end of the curve, where investors fold in long-run expectations for inflation and growth.
Williams kept his options open on rates. "I think that we have to wait and see," he said, adding, "There's no clear signs right now whether monetary policy currently is sufficient to make sure we bring inflation back to target in the next year or two, or whether you need to see further action to do that." While recent readings have been encouraging, he cautioned against drawing conclusions from a short run of data: "The [inflation] data recently have been encouraging towards that, but again we can't just look a month or two. We've got to get a full picture and and look at all the ... different pieces of information we have."
He emphasized that although tariffs and the Iran war have been cited as drivers of this year's price increase, he still sees inflation expectations as "well anchored."
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As a permanent voter on the Federal Open Market Committee, Williams' stance matters. He is still absorbing the incoming data and did not commit to a policy move, even as the CME Group's gauge showed the market putting the chance of a September hike at about 66% on Wednesday morning. Translation for everyday investors: yields are up because the economy looks strong, and policy makers are keeping their options open.