Two top-ranking Fed officials have hinted that further rate hikes might not be necessary because of rising bond yields.

Yields on long-term U.S. Treasury bonds—a benchmark for "risk-free" interest rates—have surged to record highs recently. On Oct. 3, the 10-year Treasury yield hit 4.8%, its highest mark since 2007.

“We are in a sensitive period of risk management, where we have to balance the risk of not having tightened enough, against the risk of policy being too restrictive,” Fed vice chair Philip Jefferson told the National Association for Business Economics on Oct. 9.

Referring to rising Treasury yields, Jefferson acknowledged that the Fed must “proceed carefully” with any further rate hike.

“I will remain cognizant of the tightening in financial conditions through higher bond yields and will keep that in mind as I assess the future path of policy,” he said.

Jefferson’s outlook mirrors colleague Lorie Logan’s, who heads the Federal Reserve Bank of Dallas. “If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed-funds rate,” she said, according to the Wall Street Journal.

Logan’s and Jefferson's comments carry weight because they're voting members of the Federal Open Market Committee—the body tasked with setting interest rates.

The “everything rate” is soaring

The 10-year Treasury yield—also known as the “everything rate”—is up more than 50 basis points since the start of September.

“When the 10-year moves, it affects everything; it’s the most watched benchmark for rates,” Ben Emons, head of fixed income at NewEdge Wealth, told CNBC.

The 10-year Treasury influences all types of credit, including mortgage rates, credit cards, and auto loans. As the rate rises, borrowers are forced to pay higher interest rates on new loans and existing ones with variable rates.

That’s a problem for the millions of Americans saddled with record credit card and auto debt.

“People have to borrow at a much higher rate than they would have a month ago, two months ago, six months ago,” according to Lindsay Rosner, head of multi-sector investing at Goldman Sachs’s wealth management division.

“Unfortunately, I do think there has to be some pain for the average American now.”

Biden’s conundrum

Surging interest rates make it costlier for Uncle Sam to borrow money, and that’s a problem for the Biden administration’s lofty spending programs, which seek to take on everything from infrastructure to climate change.

According to economists, rising borrowing costs and a weakening economy are a dangerous combination leading into an election year. A massive budget deficit could make the problem worse.

“How big of a problem deficits are depends—and it depends very critically on interest rates,” economist and former President Obama adviser Jason Furman told the New York Times.

While deficits are nothing new for the U.S.—Washington has spent more than it collects every year since 2000—the size of the deficit has become a concern.

“This is like a wartime budget deficit but without any help from the central bank. That is why this is so different,” said Robert Tipp, chief investment strategist at PGIM Fixed Income, in reference to the Fed no longer buying government bonds.