A sharp sell-off in U.S. Treasuries recently pushed long-term yields to their highest level since 2007, but Federal Reserve officials played down concerns that the market turmoil reflected damaged policy credibility. San Francisco Fed President Daly and St. Louis Fed President Musalem attributed the rise primarily to government financing needs and funding demand from AI infrastructure, rather than unanchored inflation expectations. Their views on September policy diverged: Daly said recent inflation, retail sales and employment data had reduced the need for further tightening and left policy in good shape, with insufficient justification for either a preemptive hike or cut. Musalem took a more hawkish stance, saying underlying inflation remained elevated at 2.5% to 3% and that policy could already be near neutral or somewhat accommodative. He also indicated that he had favored a rate increase at the July meeting. Market expectations for a September hike have fallen to about 30% from above 70% at the end of July. Neither official has voting rights on the FOMC (Federal Open Market Committee) this year, while three officials opposed keeping rates unchanged at the July meeting, underscoring continued policy divisions within the Fed.