Richmond Federal Reserve President Tom Barkin said on Monday that inflation is the main risk facing the U.S. economy, and short-dated Treasury yields kept rising as investors weighed the chance of a December rate increase. The 2-year Treasury yield ended Nov. 9 at 4.56%, according to Treasury Department data, up from 4.46% on Nov. 5.

For Asia, the message matters more than Wall Street's rebound the same day. A Fed that leans toward tightening keeps U.S. short-term rates high, which supports the dollar against currencies such as the Korean won and Japanese yen and limits how far Asian central banks can ease without weakening their exchange rates.

Barkin says inflation is the risk to watch

Speaking to a chamber of commerce in Greer, South Carolina, Barkin said that with demand healthy and inflation "stubbornly elevated," the right direction for monetary policy is "relatively straightforward." He added that risks to demand are easy to picture, so the Fed should move with care.

His speech laid out why price pressure has not eased. He cited September readings of 3.6% for headline inflation and 3.1% for core inflation on the personal consumption expenditures measure, the Fed's preferred gauge, and noted that inflation has run above the 2% target for more than five years. Companies told the Richmond Fed they are trying to pass on cost increases they had absorbed earlier, he said, listing health insurance, fuel, freight, business travel, tariffs and memory chips among the pressures.

Memory chips sit in that list for a reason. Asian producers dominate memory chip supply, so their pricing power now feeds into the cost pressures U.S. policymakers are tracking.

Barkin also pointed to a sturdy job market. Unemployment was 4.1% in October, he said, and initial jobless claims are at their lowest in more than 55 years. Business investment rose 12.7% in the third quarter, with artificial intelligence and defense spending leading the way. He named AI as the main risk to that picture in either direction: if it disappoints, investment and stock prices could fall, and if it replaces more workers than expected, spending could weaken.

Barkin did not say how he would vote in December. He is not the only official leaning hawkish. At the Fed's Oct. 28 meeting, the committee held its target range at 3.75% to 4% in a 10-2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack preferring a quarter-point increase, according to the Fed's statement.

Treasury yields and the dollar

Monday's bond moves were concentrated at the short end of the curve, where policy expectations bite hardest. The 2-year yield rose 5 basis points from Friday's 4.51%, while the 10-year yield edged up to 4.88% from 4.86%, Treasury data showed. The 30-year yield was unchanged at 5.26%.

The longer end has been calmer since the 10-year note slipped below 5% late last month. Chris Brigati, chief investment officer at SWBC, wrote in a note that Treasuries rallied only modestly last week despite a sharp stock selloff and a near-20% drop in Brent crude, which he read as a sign that bond investors are still focused on deficits, Treasury supply and the inflation outlook.

The dollar firmed against several Asian currencies over the week to Nov. 6, according to Federal Reserve data. The won weakened to 1,361.89 per dollar on Nov. 6 from 1,344.51 on Nov. 2, a drop of about 1.3%. The yen ended the week at 158.23, little changed from 157.81, and the yuan eased to 6.6760 from 6.6480. The Australian dollar fell to 68.75 U.S. cents from 70.17 cents. The Indian rupee bucked the trend, strengthening to 93.91 from 94.90.

Wall Street's best day since April

U.S. stocks rallied on Monday, extending a rebound from last week's slump. The S&P 500 rose 2.3% to 7,549.94, its best day since April, according to the Associated Press. The Dow Jones Industrial Average gained 2.2% to 52,389.75, the Nasdaq Composite climbed 2.7% to 25,253.14 and the small-company Russell 2000 rose 3.1%.

A 5.8% drop in Brent crude helped lift shares, the AP said, though Nvidia fell. The gains recovered part of last Thursday's rout, when the S&P 500 fell more than 4% and the Nasdaq lost more than 5% as investors questioned the pace of AI data-center spending, according to SWBC.

Cheaper oil cuts both ways for the Fed. It eases one of the cost pressures Barkin described, and lower fuel prices would help Asian importers such as Japan, South Korea and India. But a stock rally adds to the household wealth that Barkin said is keeping better-off consumers spending, which supports demand at a time when the Fed sees inflation as the bigger risk.

The next Fed voice markets will hear is Chicago Fed President Austan Goolsbee, who is scheduled to take part in a moderated discussion on Nov. 12 at 10:15 a.m. Chicago time, according to the Chicago Fed.