Kevin Warsh just got the Fed chair job, and the bond market just made it a lot harder to do. The 30-year Treasury yield jumped past 5.1% this week, with the week's 30-year auction clearing at 5.046%, the highest yield at a sale of that maturity since August 2007.
That's a problem for a Fed chair who was hired to cut rates, not defend them.
Yields, the interest rate a bond pays, move with inflation expectations. Buyers want a bigger rate when they expect prices to keep rising.
The latest data wasn't friendly. Wholesale prices, also called PPI, are running at 6%, the fastest pace since 2022, and consumer prices came in at 3.8%, hotter than economists expected.
Energy is doing most of the damage, with the war in Iran disrupting oil supply and feeding into freight and shipping costs. Both flow through to prices a few weeks later.
The head of research at Societe Generale Americas told Bloomberg the inflation backdrop will be Warsh's first big test. The bank's read was that a hike now looks more likely than a cut over the next year.
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President Trump wanted Warsh in the chair because Warsh has supported rate cuts in the past. Cheaper money would lower government interest costs and lift stocks.
The math doesn't add up right now. Warsh is one of 12 voting members on the Federal Open Market Committee, the group that sets rates, and the rest of the committee is leaning the other way.
At the last meeting, only one member wanted a cut. Three members dissented because they thought the official statement leaned too dovish.
Federal funds futures show traders no longer expect a cut in 2026 or 2027. There's now a higher probability of a hike in late 2027 than another reduction.
The 10-year Treasury yield is the number to keep an eye on, currently sitting around 4.59%. Anything pushing toward 5% tends to pinch stock valuations and squeeze housing as mortgage rates follow.
Warsh got the job by making the case for cheaper money. He'll spend his first weeks running into the case against it.
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