The Federal Reserve Hammack calmly watches as US Treasury yields rise: The US financial market is tense but still functioning.

Cleveland Fed President Beth Hammack said that despite recent trade policy fluctuations from President Trump causing volatility in U.S. Treasuries, the U.S. financial markets are running smoothly. Hammack stated, "The markets look tense, but they are still functioning. Markets, businesses, and households are all working to process all of this incoming information, especially regarding trade policy. Overall, the market is very good at self-regulating, and I think that's what we are seeing." The drop in U.S. Treasury prices caused by Trump's trade policy has pushed up long-term yields, sparking rumors that the Fed may need to intervene to stabilize the market if the bond market continues to deteriorate. After experiencing several days of volatility, the sell-off of U.S. Treasuries intensified on Wednesday following the implementation of additional tariffs in the U.S. and China's retaliatory tariffs on American goods, causing the yield on U.S. 30-year Treasury bonds to briefly exceed 5%. Hammack, who joined the Cleveland Fed last year after working at Goldman Sachs for 30 years and serving as co-head of global financing before leaving Goldman Sachs early last year. Strategists from Deutsche Bank and Jefferies as well as the CEO of Apollo Global Management said earlier on Wednesday that the Fed may need to intervene if market turmoil continues. George Saravelos, Global Head of FX Strategy at Deutsche Bank, had previously suggested that if the chaos continues, the Fed may need to consider emergency quantitative easing, i.e., buying bonds. Meanwhile, Jefferies economist Thomas Simons hinted that the Fed would be best advised to use tools used in past crises, including exempting supplemental leverage ratio (SLR) requirements for government bonds and deposits. The SLR rule requires financial institutions to set aside a certain amount of capital relative to their assets. Simons said that this would help traders expand their balance sheets and hold securities that others are selling. Hammack said that if the federal funds rate starts to exceed its target range (currently 4.25%-4.5%), the Fed can intervene in the currency market using tools. Hammack expressed skepticism about whether adjusting the SLR could alleviate pressure. She said, "Given the volatility in the market, it is not clear whether lifting the SLR restrictions will increase the risk appetite for banks and other intermediaries." Policymakers typically intervene in the market during extreme moments when signs of a credit freeze appear. Currently, officials have indicated that they expect to maintain the current rate levels until they have a better understanding of the overall impact of Trump's policies on the economy in trade, immigration, and regulation. Minneapolis Fed President Neel Kashkari pointed out on Wednesday that the inflationary impact of tariffs reduces the possibility of a rate cut by the central bank, even as the economy begins to deteriorate. Hammack said that after officials lowered borrowing costs by a full percentage point last year, rates are "moderately restrained." She prefers to wait for more clarity on the economic trends before adjusting policies. She said, "I would rather wait and move in the right direction than rush in the wrong direction."