Arabic version: ارتفاع عوائد سندات الخزانة يختبر وارش والاحتياطي الفيدرالي
According to Cnbc, surging Treasury yields have put the Federal Reserve and Chairman Kevin Warsh in a difficult position as investors weigh inflation, energy prices, AI-related investment and debt issuance. Policymakers must decide how strongly to respond without damaging the economic expansion or weakening confidence in their commitment to price stability.
Markets have raised the odds of an October rate increase, following last week’s quarter-percentage-point hike, and see a third increase either late this year or early in 2027. That marks a sharp change from the Fed’s June projection, when it indicated it might raise rates once this year before beginning cuts in the next couple of years.
Joseph Brusuelas, chief economist at RSM, said the Fed’s bias should be toward restoring price stability. RSM modeling found that a 5.5% 10-year Treasury yield, compared with about 5.15% on Thursday, could reduce growth to 1.5% and raise unemployment to 4.7% while core inflation remained at 2.4%. Brusuelas said restoring price stability could require five or six hikes rather than two or three.
Other economists urged restraint. Citigroup’s Andrew Hollenhorst said the rise in yields reflected real yields and investors pricing in higher Fed policy rates, rather than expectations that the central bank would allow inflation to remain above target. New York Fed President John Williams called another hike by year-end “reasonable” but said officials should continue watching data rather than commit to a preset path. Philadelphia Fed President Anna Paulson described likely additional tightening as “modest.”
The policy challenge is heightened by Warsh’s emphasis on using financial-market signals as an input to monetary decisions. The 30-year Treasury yield reached its highest level since 2004, while markets have interpreted Warsh as likely to accept progressively higher benchmark rates. Evercore ISI’s Krishna Guha said market expectations were “too aggressive,” warning that either back-to-back hikes or a decision to skip a hike could trigger a large market repricing.
