WSJ smacks Warsh upside the head

Investment Analysis Clubs Macro Economic Trends and Risks
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This is a front-page WSJ article, not an editorial! Whew!

https://www.wsj.com/finance/investing/kevin-warshs-honeymoon-with-the-bond-market-is-already-over-23bd0c6a

Kevin Warsh’s Honeymoon With the Bond Market Is Already Over

Investors warn that Fed must show commitment to inflation fight after Wednesday’s selloff

By Sam Goldfarb, The Wall Street Journal, July 30, 2026

  1. Longer-term U.S. Treasury yields held near 19-year highs after Federal Reserve Chairman Kevin Warsh failed to signal support for rate hikes.
  2. While longer-term bond yields surged, short-term Treasury yields fell on concerns that the Fed would wait too long to raise interest rates.
  3. Investors warned that further doubts about the Federal Reserve’s commitment to fighting inflation could trigger an even worse market selloff.

The bond market has a message for Kevin Warsh: Don’t try that again.

Yields on longer-term U.S. Treasurys held near their highest levels in 19 years Thursday, a day after the Federal Reserve chairman jolted the market by failing to persuade investors that he was willing to support rate increases to fight inflation.

The moves were unusual—and alarming. Even as yields on longer-term bonds surged, those on short-term Treasurys fell, indicating concerns that the Fed would wait too long to lift rates and then have to raise them aggressively down the road…

But investors also said that, if given more reason to doubt the central bank, the next selloff would be worse—triggering a damaging increase in rates on everything from mortgages to corporate debt…

Warsh suggested that the Fed could consider a range of inflation indicators beyond its official gauge, the personal-consumption expenditures price index. He said that higher rates “could well be part of” the solution to high inflation rather than the main one.

Investors and analysts were unusually sharp in their criticism, with some saying that Warsh would have caused less damage if he hadn’t even held a press conference. … [end quote]

Yikes! I hope nobody ever says anything like that about me! Especially not on the front page of a major newspaper!

Just look at how the yield curve shifted up on the long end.

The bond market is very unhappy since all existing bonds drop in value when yields rise. And the charts don’t show a turn-around.

Look at the gap up in the 10yt yield in yellow! This isn’t what a Fed chair wants to see.

Is this a new trend? Or will it peak and turn around?

Wendy

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Haven’t you heard? Inflation is already down. Some say by 400%, 500% or more. Affordability is a fake-word. And GDP is hotter than it’s ever been.

Warsh will not be allowed to make his own decisions.

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If Fed won’t act on inflation, maybe the bond market is doing it for them with yields marching up (and that might be more effective than adjusting short rates, anyway).

Did the market suss out who is a talker vs doer?

Or maybe it’s 4-D chess and he knew that market would act?

Short answer: just wants to be Fed chair.

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WSJ and others still using old definitions of inflation. Warsh using new defns. Latest PCE according to Warsh 2.3%. Political influence in advance of midterms? Raising interest rates making mortgages even more expensive?.. ooo, yeah…

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Today’s interest rates do seem mild compared to past history.
Of course if you are using 2010-2015 as a guide; they are extremely high already.

Chart of U.S. Interest Rate Over Time
Chart of U.S. Interest Rate Over Time1200×1199 432 KB

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Your link to the article says “America’s Most Popular Ice Cream Brands” but the chart shows interest rates.

It is my fervent belief, and I think most Board members would agree, that Ice Cream has a much larger macro economic impact than interest rates.

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Indeed!
I have 4 pints of ice cream in my freezer as I post. I NEVER allow the freezer to dip below 2 pints. IMO ice cream is a basic food group.

And my consumption of ice cream may cause my premature death.

But it is my belief that the US is a nation run by the wealthy & corporate interests who have bought a preponderance number of politicians. The US is on a trajectory similar to Rome. I am glad I [age 75] likely only have about 10 years left before I shuffle off this mortal coil.

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Google tells me that since 1954 the average effective Fed funds rate has been 4.8%. It is currently at 3.6%.

DB2

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And of course, if we’re concerned about say day-to-day home mortgage rates, historically, the 30‑year mortgage rate, has averaged about 3 percentage points above the fed funds rate since the late 1980s. For example, if the fed funds rate is around 3.5%, mortgage rates might sit near 6.5%.crr.bc.

Pete

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