U.S. President Donald Trump, who hand-picked Warsh, called him "brilliant" following the Fed meeting. "I know he'd love to see lower interest rates, but he's got a board, and it's a political board, and they want to keep rates up," Trump told reporters in the Oval Office.
Trump has made no secret of his desire to see rate cuts and repeatedly put pressure on the Fed to lower borrowing costs.
Warsh comments raise questions about policy direction
In a post-meeting press conference, Warsh vowed to contain inflation, but declined to offer any guidance on what action would be needed by the central bank.
"Talking hawkish but not acting so reduces the Fed's credibility," Ed Yardeni, president of Yardeni Research, said in a note.
Warsh noted that since the Fed's last monetary policy meeting, bond yields had risen sharply — as investors priced in rate increases — and said he welcomed that move, but said it did not mean the central bank needed to ratify it with action.
"It suggests that the market is doing the hard work for the Federal Reserve and tightening financial conditions without the need for a Fed rate hike," said Kathleen Brooks, research director at XTB.
"If the chair of the Fed is pointing this out, then this could mark a high point for U.S. Treasury yields, which may only move higher if the inflation picture dramatically worsens."
Longer-dated yields rise faster and traders price in more tightening
10-year bond yields US10YT=RR rose to 4.6919%, while yields on 2-year notes US2YT=RR were only modestly higher at 4.2706%, markedly steepening the curve.
Yields on longer-dated bonds have risen at a quicker pace than their shorter-dated peers this week, leaving the gap between 2-year and 30-year curve yields US2US30=RR at 94.1 bps, up from over 81.25 bps last week.
The steepening reflects a push by investors away from longer-dated debt and into shorter maturities, which stand to benefit more from any immediate changes in monetary policy.
Money markets show traders are attaching roughly a 69% chance of a Fed hike in September. 0#USDIRPR
"We think the need to re-establish credibility increases the probability that the Fed will hike in September," BofA analysts said in a note.
30-year yields hit 19-year highs as the curve steepens
U.S. 30-year Treasury yields jumped to 19-year highs on Thursday, as confusing remarks from Federal Reserve Chair Kevin Warsh left investors perplexed about the central bank's monetary policy path, prompting them to seek more insurance against future inflation risks.
Anxious investors drove yields on the inflation-sensitive 30-year bonds US30YT=RR up to 5.239%, peaks last seen in mid-2007, having cleared the May top of 5.201% late in New York trading a day earlier.
The sudden selloff came after the Fed left rates unchanged at Wednesday's policy meeting, even as three members of the Federal Open Market Committee voted for an immediate hike.
Market-based measures of inflation expectations jumped after the meeting, pushing five-year inflation swaps up by the most in a day since November 2024 to 2.4%USCPIZ5Y=TWEB.
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