Kevin Warsh, President Donald Trump’s nominee to be next chair of the Federal Reserve, testifies before a Senate Banking Committee confirmation hearing on Capitol Hill in Washington, April 21, 2026.
Kevin Lamarque | Reuters
Sent to the Federal Reserve to lower interest rates, incoming Chair Kevin Warsh instead may have to push for higher levels to establish credibility, market veteran Ed Yardeni said.
If the new central bank leader fails to signal that policymakers are attuned to inflation pressures, it could risk further market wrath in the form of escalating Treasury yields, added Yardeni, the originator of the term “bond vigilantes” to describe such incidents of investor unrest.
“Warsh is set to chair the June Federal Open Market Committee (FOMC) meeting, but who’s actually in the monetary-policy driver’s seat? We’d argue that it’s the Bond Vigilantes,” Yardeni, the head of Yardeni Research, wrote Monday. When it comes to the sentiment of policymakers, “Warsh is going to be the odd man out. But he is the new Fed chair, and the bond market is reacting badly to his dovish stance.”
Treasury yields surged Friday, with the 30-year bond eclipsing 5% to its highest in nearly a year. The long bond on Monday morning was little changed at 5.138%. The 2-year Treasury, which is more sensitive to Fed rate moves, edged lower to 4.07%.
30-year bond yield
In statements prior to taking over the chair’s position, Warsh has said he believes the Fed can lower its benchmark interest rate from its current targeted range of 3.5% to 3.75%.
However, a recent surge in inflation, triggered largely by the Iran war but also owning to other underlying factors, has led to markets repricing rate expectations.
But it’s gotten more complicated with Warsh’s arrival: Not only does the market not believe the Fed will cut, but odds also are rising for a hike, with current pricing implying a 42% chance of an increase by the end of the year, according to the CME Group’s FedWatch tool.
Yardeni, though, thinks it will come sooner than that. While he sees the Fed holding steady at the June meeting, he believes a rate increase of a quarter percentage point is “likely” in July. However, he thinks in June the Warsh-led Fed can take its first step to tightening — by removing so-called forward guidance language from the post-meeting statement that has been interpreted to mean the central bank’s next move will be a cut.
“The Fed must catch up to the bond market to avoid losing control of borrowing costs and to appease the Bond Vigilantes,” he said. “By now, they might need to see a tightening stance rather than a neutral stance. A surprise FFR rate hike might actually please them!”
Yardeni is arguing that a tightening bias from the Warsh Fed early will help allay bond market concerns, keeping a lid on yields and allowing the Fed flexibility later.
“So by acting hawkishly, Warsh might have a chance of delivering what the White House wants: lower real-world borrowing costs,” he said. “Mortgage rates could fall, corporate financing would ease, and Trump can point to declining long-term yields as the economic win.”
Yardeni’s call for a July hike is well outside consensus. While market odds rise through the year, the current implied probability for a July increase is just 4.2%, per FedWatch.
