Market veteran Ed Yardeni says rising Treasury yields may compel the Fed to raise rates next month despite incoming Chair Warsh’s dovish stance.
Incoming Federal Reserve Chair Kevin Warsh may need to raise interest rates in July to counter surging Treasury yields and appease bond investors, according to market strategist Ed Yardeni. The 30-year Treasury yield topped 5% Friday, its highest level in nearly a year, as markets repriced rate expectations amid persistent inflation pressures tied to geopolitical tensions and underlying economic factors.
Warsh, who has previously advocated for rate cuts, now faces a dilemma as bond vigilantes—investors driving yields higher to pressure policymakers—demand tighter monetary policy. The 2-year Treasury yield, sensitive to Fed moves, dipped slightly to 4.07% Monday, while the 30-year yield held at 5.138%. Yardeni argues the bond market, not the Fed, is dictating policy direction.
Failure to address inflation risks could trigger further market volatility, Yardeni warned, as investors lose confidence in the central bank’s commitment to price stability. The Fed’s current benchmark rate stands at 3.5%-3.75% after a series of aggressive hikes last year.