As the Fed sits tight on interest rates, investors take action

July 30, 2026 — 12:02pm

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Kevin Warsh, the Trump-appointed chair of the US Federal Reserve Board, talks like a hawk, but has yet to act as one. That’s left it to investors to take matters out of his - and the Fed’s - hands.

Long-term bond yields shot up – the 30-year yield to its highest level since 2007 – and Wall Street slumped after the Fed left US interest rates unchanged and Warsh provided no guidance in his press conference on the future direction of the Fed’s policy rate.

There is some pressure for a rate rise building with the Federal Open Market Committee (FOMC) that sets US monetary policy. For the first time in a decade, three of its members – three regional Fed presidents – voted for a 25 basis point rate hike.

Warsh, however, while continuing to assert that he has “no tolerance” for elevated inflation levels – the US inflation rate has remained above the Fed’s 2 per cent target for more than five years – maintained his stance of providing no guidance to market participants, saying only that “we’re on the job, we will deliver.” How and when the Fed might deliver were left as open questions.

The lack of guidance is deliberate. He has said he wants financial markets to respond to economic developments, rather than the Fed’s signalling, and become a “direct and unfiltered” source of information for the Fed.

That is effectively what he got. The markets, the bond market in particular, took matters into their own hands, with the spike in yields on the longer duration bonds effectively tightening US monetary policy despite the Fed leaving rates unchanged.

The bond market is providing Warsh with the signal he wants: it is saying that it is now questioning whether he is as committed to attacking inflation as he has claimed.

While the yield on two-year US Treasury notes – the securities that are most sensitive to movements, or expectations of movement, in the federal funds rate – actually fell, the yield on 10-year bonds jumped 7........

© The Sydney Morning Herald