Stephen Miran argues the recent rise in US Treasury yields does not indicate market concerns about US debt sustainability or Federal Reserve credibility. Instead, the yield increase is driven by higher expectations for long-term economic growth, fueled by AI, deregulation, and improved tax policy. Miran divides the yield into real and inflation components, noting that inflation expectations remain well-anchored at the Fed's 2% target.

The rise in real yields is attributed to higher expected overnight rates, reflecting stronger long-run growth expectations. He posits that stronger economic growth, potentially boosted by AI and deregulation, will improve the fiscal path, potentially reducing deficits by one percentage point of GDP per percentage point of growth. Miran also notes that recent tariff revenue fluctuations, including $418 billion forecast for 2026, have temporarily swollen deficits due to refunds, but these will reverse as rates normalize.

As tariffs take effect and energy shocks fade, inflation and rates are expected to decline, further improving the fiscal outlook, though entitlement reform remains necessary for long-term stability.