John Williams Says Treasury Yield Surge Reflects Strong Economy, Keeping Mortgage Rates Under Pressure

Williams Leaves September Decision Open

Speaking with CNBC on Wednesday, Williams said policymakers need more information before determining whether monetary policy is restrictive enough to bring inflation back to the Federal Reserve’s 2% objective.

“I think that we have to wait and see,” Williams said, according to the CNBC interview.

He said recent inflation data have been encouraging but cautioned against drawing conclusions from only one or two months of data.

The comments reinforce the Fed’s current data-dependent posture. The central bank has kept its federal funds target range at 3.5% to 3.75% throughout 2026, but officials have increasingly emphasized the need to weigh incoming inflation, employment and growth data before making additional policy adjustments.

Williams is a permanent voter on the FOMC as president of the Federal Reserve Bank of New York.

His comments also arrive against a backdrop in which three FOMC members dissented in July in favor of a rate increase. The July 28-29 meeting ended with the committee holding the target range at 3.5% to 3.75% by a 9-3 vote. Beth Hammack, Neel Kashkari and Lorie Logan preferred a quarter-point increase.

Why Treasury Yields Matter More for Mortgage Rates

The most immediate mortgage-market issue is not necessarily what the Fed does with the overnight federal funds rate. It is where longer-term interest rates settle.

Treasury securities provide a benchmark for many fixed-income assets, including mortgage-backed securities. Mortgage lenders price 30-year fixed loans based on the broader bond market, the expected path of interest rates, mortgage-backed securities demand, lender margins and borrower and loan characteristics.

That means a Fed rate hike is not automatically guaranteed to push mortgage rates higher by 25 basis points.

Conversely, a Fed rate cut would not necessarily produce an equivalent decline in mortgage rates if long-term Treasury yields remain elevated.

The current market illustrates that distinction. The Treasury’s Sept. 1 curve showed yields of 4.79% at 10 years and 5.27% at both 20 and 30 years.

At the same time, Freddie Mac’s weekly 30-year mortgage average has remained in a relatively narrow range around the mid-6% area:

Source: Freddie Mac Primary Mortgage Market Survey.

The data show that mortgage rates have not simply followed every move in Treasury yields. But sustained increases in long-term yields can make it more difficult for mortgage rates to move materially lower.

For borrowers waiting for rates to fall, that creates an important distinction: a Fed policy change is only one piece of the mortgage-rate equation.

Williams Points to AI Investment as a Growth Driver

Williams attributed much of the recent rise in long-term yields to the strength of the economy and expectations for continued investment, particularly in artificial intelligence, data centers and technology.

“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,” Williams said.

He characterized the relationship as the economy affecting financial conditions rather than financial conditions materially weakening the economy.

That view is consistent with Williams’ recent public comments.

In a July speech, Williams said the U.S. economy had remained resilient, with technology and AI investment contributing to strong business investment and stock-market gains. At the same time, he noted that weakness in areas including residential construction had offset some of that strength.

Williams also warned in July that strong demand associated with the technology buildout was contributing to price pressures in some areas. He specifically cited higher demand for semiconductors, power transformers and other inputs needed for AI infrastructure.

That creates a complicated backdrop for the Fed.

Strong investment and productivity can support economic growth, but stronger demand can also make it harder to bring inflation down quickly.

Inflation Remains the Fed's Central Concern

The FOMC has repeatedly acknowledged that inflation remains above its 2% longer-run target.

In its July statement, the committee said economic activity was expanding at a solid pace, productivity growth and capital investment were strong, and job gains had kept pace with the workforce. But it also said inflation remained elevated relative to its 2% goal, citing supply shocks including higher energy prices.

The July meeting minutes showed that nominal Treasury yields had already risen 25 to 30 basis points over the intermeeting period, driven primarily by increases in real interest rates. The minutes also said market pricing at the time fully reflected a 25-basis-point rate increase by September.

That makes the September meeting particularly important for mortgage lenders, borrowers and housing-market participants.

A rate increase would raise the Fed’s overnight policy rate and could put additional pressure on short-term borrowing costs. But the larger mortgage question would be how Treasury yields and mortgage-backed securities respond to the decision and to the Fed’s forward guidance.

The 2026 Fed Policy Timeline

The Fed has maintained a restrictive policy stance throughout the year, even as the economic outlook has evolved.

Jan. 28: The FOMC maintained the federal funds target range at 3.5% to 3.75%, citing solid economic activity, low job gains and inflation that remained somewhat elevated.

March 18: The committee again held rates at 3.5% to 3.75%. The statement said policymakers would assess incoming data, the evolving outlook and the balance of risks when considering the timing and extent of additional adjustments.

April 29: The FOMC maintained the same target range while noting solid economic activity, low average job gains, elevated inflation and heightened uncertainty associated with developments in the Middle East.

June 16-17: Policymakers again held rates at 3.5% to 3.75%. The minutes showed that members emphasized delivering price stability as inflation remained elevated.

July 28-29: The committee held rates again, but the decision became more contentious. Three members favored a 25-basis-point increase, producing a 9-3 vote. The committee also retained language stating that inflation remained elevated relative to its 2% goal.

Sept. 15-16: The next scheduled FOMC meeting will include a new decision on the federal funds rate. The meeting is also scheduled to include updated economic projections.

What a September Hike Could Mean for Mortgage Rates

A September rate hike would not mechanically add a quarter percentage point to the average 30-year mortgage rate.

The federal funds rate controls the cost of overnight interbank borrowing. A 30-year fixed mortgage is priced in the longer-term capital markets.

Still, a hike could influence mortgage rates through several channels.

First, it could reinforce expectations that inflation will remain persistent, potentially pushing longer-term yields higher.

Second, it could alter expectations for the future path of Fed policy. If investors interpret a hike as the beginning of a renewed tightening cycle, longer-term yields could rise.

Third, a hike could have the opposite effect if investors view it as a decisive move that will eventually bring inflation under control. In that scenario, longer-term yields could fall if markets become more confident about future inflation.

The key variable for mortgage borrowers is therefore not simply whether the Fed hikes. It is how the bond market interprets the decision.

Mortgage Rates Face a Difficult Path Lower

Freddie Mac's latest survey offers a useful snapshot of the current environment.

The average 30-year fixed mortgage rate was 6.66% on Aug. 27, while the 15-year fixed rate averaged 5.98%. The 30-year rate was 6.56% one year earlier.

That means mortgage rates have remained elevated even though the federal funds target range has been unchanged since the beginning of the year.

The reason is straightforward: mortgage rates reflect more than the current Fed policy rate.

The Treasury market's recent move reinforces that point. The 10-year Treasury yield reached 4.79% on Sept. 1, while the 30-year yield reached 5.27%.

Williams' interpretation of those moves is therefore significant for housing. If long-term yields are rising because investors expect stronger economic growth and sustained investment, rather than because the Treasury market is experiencing dysfunction, the pressure may not disappear quickly.

That does not mean mortgage rates must rise from current levels. But it does make a rapid return to substantially lower mortgage rates more difficult without a corresponding decline in long-term yields, mortgage-backed securities spreads or both.

The Housing Market Is Caught Between Growth and Affordability

The same economic strength supporting Treasury yields can produce mixed effects for housing.

A resilient economy can support household incomes, employment and demand for homes. Strong productivity growth could eventually support greater economic capacity and lower inflation.

But higher interest rates increase the cost of financing a home.

At 6.66%, the average 30-year mortgage rate remains well above the rates available during the refinancing boom earlier in the decade. That rate environment can discourage existing homeowners with low-rate mortgages from selling and can limit affordability for prospective buyers.

Williams has previously highlighted that dynamic. In March, he noted that the refinancing boom of 2020-21 had significantly lowered mortgage payments for many homeowners, increasing disposable income and supporting consumer spending. He also noted that lower-income households and renters had been under greater financial pressure.

The result is an unusual housing environment in which economic resilience can simultaneously support demand and keep borrowing costs elevated.

What to Watch Before the September Meeting

For mortgage professionals and borrowers, several developments will matter between now and the Fed's Sept. 15-16 meeting.

Inflation data: Williams has emphasized that recent readings are encouraging but that policymakers need a broader picture. Additional inflation reports could materially change expectations for September.

Labor-market data: The Fed's dual mandate means employment remains central to the decision. A deterioration in labor conditions could strengthen the case against another hike, while continued resilience could give policymakers more room to focus on inflation.

Treasury yields: Even without a Fed move, sustained increases in 10-year and other long-term Treasury yields can keep mortgage rates elevated.

Fed communications: Statements from voting FOMC members will be closely watched for evidence of whether the July dissenters' preference for higher rates is gaining support.

Mortgage-backed securities spreads: The relationship between Treasury yields and mortgage rates can change as investor demand and risk premiums shift.

The Bottom Line for Mortgage Rates

Williams' message offers no clear signal that the Fed will raise rates in September. Instead, it reinforces the central bank's data-dependent approach while providing an explanation for one of the mortgage market's biggest headwinds: elevated long-term interest rates.

The Federal Reserve has kept its policy rate unchanged at 3.5% to 3.75% all year, but Treasury yields have moved higher as investors assess economic growth, inflation and the implications of massive technology investment.

For mortgage borrowers, the practical takeaway is that waiting for a Fed rate cut is not the same thing as waiting for mortgage rates to fall. Long-term bond yields and mortgage-market pricing will remain critical.

The next major test comes Sept. 15-16, when the FOMC will decide whether the current policy stance is sufficient to return inflation to target—or whether, as Williams put it, further action may be necessary.