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It didn\u2019t take Kevin Warsh long to get the bond market\u2019s attention.<\/p>\n
Traders dumped short-term Treasuries, pushing some yields up by the most in over a year, and futures traders piled into bets on rate hikes as soon as next month, after Warsh forcefully drove home one point in his debut press conference as Federal Reserve chairman: the central bank won\u2019t tolerate high inflation.<\/p>\n
\u201cWe\u2019re getting a message very clearly from policymakers that the rates trajectory is not lower in the near term,\u201d said Kate Moore, chief investment officer of Citi Wealth.<\/p>\n
Before Wednesday\u2019s meeting, Wall Street had largely assumed the Fed was done cutting rates ever since the Iran war\u2019s oil shock sent consumer prices surging by the most in three years.<\/p>\n
Kevin Warsh during a news conference following a Federal Open Market Committee meeting in Washington, DC, on June 17.<\/p>\n
But markets had wavered over how quickly the Fed would pivot back into inflation-fighting mode. Investors also nursed some doubts about whether Warsh would give in to President Donald Trump, who elevated him to the central bank post after repeatedly lashing out at his predecessor, Jerome Powell, for not slashing rates enough.<\/p>\n
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Both questions appeared to be settled \u2014 at least for now \u2014 after Warsh again and again emphasized the Fed\u2019s commitment to getting inflation under control. He even criticized the central bank for its forecasting as the pace remained stuck over its 2% target since the pandemic. The hawkish message was driven home by the projections of individual Fed members, half of whom expect to hike rates by the end of the year.<\/p>\n
\u201cIf nothing else, the market has renewed confidence in the Fed\u2019s inflation fighting ability and conviction,\u201d said Ian Lyngen, head of US rates strategy at BMO Capital Markets. \u201cIt was a good day for central banking independence.\u201d<\/p>\n<\/p>\n
The Fed\u2019s message triggered waves of repositioning in markets as traders rushed to get ahead of its moves.<\/p>\n
Two-year Treasury yields, which closely track expectations for monetary policy, shot up 13 basis points, the biggest jump since April 2025. That matched the largest increase on a Fed meeting day since 2008.<\/p>\n
Futures traders solidified expectations for a quarter-point rate hike by October, just before the mid-term elections, if not sooner. And 30-year Treasury yields slipped to the lowest since late April, in a sign of faith that inflation will ultimately be contained over the long haul.<\/p>\n
Still, the moves retraced slightly in Asia trading on Thursday as oil slipped on optimism about a quick resumption of energy flows following the signing of the US-Iran deal. But the yield premium that investors demand to hold 30-year bonds over two-year notes was little changed after touching a 14-month low on Wednesday.<\/p>\n
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The movements cap what has been a stark shift in the market\u2019s expectations for the direction of interest rates over the past few months, one that\u2019s persisting even as oil prices pull back while the US and Iran move closer toward ending the war.<\/p>\n
That\u2019s because energy prices have only been one factor keeping inflation stubbornly above the Fed\u2019s target. Job growth has picked up and the economy has remained surprisingly resilient, bucking periodic calls that a recession was on the horizon. The record-setting stock rally has bolstered consumer spending, helping to offset the hit of higher gas prices. And the artificial-intelligence boom has unleashed a flood of investment spending by big tech companies.<\/p>\n
Warsh didn\u2019t commit to raising rates, and, after the Fed held steady again Wednesday, indicated he saw little reason in trying to forecast such moves in advance. He also largely sidestepped a question on why the Fed didn\u2019t go ahead and raise rates now, given that inflation is so high, and characterized the bank\u2019s internal deliberations as \u201ca good family fight.\u201d<\/p>\n<\/p>\n
James St. Aubin, chief investment officer at Ocean Park Asset Management, said Warsh was trying to strike a balance by reassuring the market that he won\u2019t jeopardize the Fed\u2019s credibility while, at the same time, not drawing Trump\u2019s ire. In that sense, Warsh didn\u2019t leave himself boxed in.<\/p>\n
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\u201cHe\u2019s really just trying to appease two masters,\u201d he said. \u201cHe\u2019s walking a fine line.\u201d<\/p>\n
Warsh\u2019s takeover of the Fed came after it was subject to an unprecedented pressure campaign by the Trump administration, which included an effort to oust Governor Lisa Cook and a criminal investigation that Powell said was in retaliation for not bending monetary policy to the president\u2019s will.<\/p>\n
Warsh was a staunch hawk during his term as Fed governor between 2006 and 2011, when the housing-market collapse drove the US into a deep recession. Yet he had gone on to become a fierce critic of the central bank and last year faulted it for continuing to forecast elevated inflation, saying AI will unleash a \u201csignificant disinflationary force\u201d by increasing productivity, casting some doubts on his current views.<\/p>\n
The position he staked out at his maiden press conference, though, underscored that the Fed\u2019s focus is shifting back to its mandate to combat inflation after nudging rates down in late 2024 and again at the end of last year.<\/p>\n
\u201cThis was a very solid debut for Warsh,\u201d said Win Thin, chief economist at Bank of Nassau 1982. \u201cThe key takeaway is that the Fed has become much more willing to hike rates in the second half of the year.\u201d<\/p>\n
\u00a9 2026 Bloomberg<\/p>\n
#Feds #Warsh #rocks #bond #market #debut #sparks #surge #ratehike #bets<\/p>\n","protected":false},"excerpt":{"rendered":"
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