Surging Treasury yields pose a brand new problem for Kevin Warsh and the Fed — SkimNews
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- Treasury yields kept climbing Thursday, pushing the 30-year bond to its highest level since 2004 as investors weighed inflation stuck above the Fed's 2% goal, rising energy prices, and AI-driven hyperscaler debt issuance
- Traders sharply raised odds of an October rate hike — just a month after September's quarter-point move — and now price in a third hike by late 2026 or early 2027
- Fed Chair Kevin Warsh has flipped from pre-job calls for cuts to anchoring a hawkish FOMC coalition, with UBS economist Jonathan Pingle writing his views align most with hawkish Cleveland Fed President Beth Hammack
- RSM Chief Economist Joseph Brusuelas warned that even a 5.5% 10-year yield (vs. ~5.15% Thursday) would only slow growth to 1.5%, lift unemployment to 4.7%, and leave core inflation at 2.4% — suggesting five or six hikes total
- New York Fed President John Williams and Philadelphia Fed President Anna Paulson pushed back on an aggressive hiking path, with Williams urging caution on locking into forward guidance and Paulson calling further tightening "modest"
- Citigroup economist Andrew Hollenhorst countered that the yield rise reflects higher real rates — investors pricing in firmer Fed policy — rather than fears of a too-dovish Fed
- Evercore ISI's Krishna Guha warned Fed officials face a no-win scenario: back-to-back hikes without guidance risk an outsized hawkish repricing, while skipping a priced-in hike risks a large dovish one
Why it matters: The Fed's credibility-vs-growth tradeoff has sharpened: RSM modeling shows even a 5.5% 10-year yield would push unemployment to 4.7% while leaving core inflation stuck at 2.4%. Borrowers absorb the immediate hit — October rate-hike odds rose sharply in the past day, with traders now pricing a third hike by early 2027.
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