Federal Reserve Chair Warsh delivered a hawkish message in a closely watched speech, saying the central bank needs to contain consumer price increases, a message that eased some doubts about its commitment to fighting inflation. The immediate reaction in the Treasury market was a clear split: short-term bonds sold off while longer maturities rallied. The two-year yield climbed 5 basis points to 4.28%, while the 30-year yield slipped 1 basis point to 5.19%. Traders read the move as a signal that the Fed may need to raise short-term rates. Skepticism toward Warsh has persisted since his first press conference in June, when he emphasized the need to lower inflation and struck a hawkish tone. US inflation has stayed above the Fed's 2% target since the global economy reopened from the pandemic in 2021. In July, the Fed held rates unchanged and Warsh did not say whether a hike was possible this year. Long-term yields subsequently rose sharply, as investors demanded extra compensation for inflation risk. On Friday, Warsh warned that inflation has not shown a meaningful slowdown and said policymakers must be convinced that price pressures are improving, otherwise the central bank 'has more work to do.' He reiterated the 2% target remains clear and fixed.
Federal Reserve Chair Warsh said in a closely watched speech that the central bank needs to contain consumer price increases, easing some of the market's concerns about its ability to fight inflation.
Treasury yields moved during his remarks, with short-dated bonds sold off and longer maturities rising. The two-year yield climbed 5 basis points to 4.28%, while the 30-year yield slipped 1 basis point to 5.19% — a combination suggesting traders expect the Fed may need to raise short-term rates.
Bond traders have had doubts about Warsh's stance since his first press conference in June, when he stressed the need to push inflation lower and sounded hawkish. US inflation has stayed above the Fed's 2% target since the global economy reopened from the pandemic in 2021. In July, the Fed held rates unchanged again, and Warsh did not say whether a hike was possible this year. Long-term yields rose sharply after that, as traders demanded higher returns to compensate for the risk of inflation staying elevated.
On Friday, Warsh warned that inflation has not slowed in a meaningful way and said policymakers must be convinced that price pressures are improving, otherwise the central bank 'has more work to do.' He reiterated the commitment to bringing inflation back to 2%, describing the goal as clear and fixed.
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