Yields Rise As The Fed Begins “A New Chapter”

Although the Fed held the federal funds rate steady last week, Warsh’s hawkish tone (coupled with news that several Fed members now expect interest rates to rise this year) left investors convinced that one or more rate hikes aimed at lowering inflation are on the horizon.

One result: The yield on the 2-year Treasury note (which is highly sensitive to Fed policy) has shot up approximately 17 basis points in the past few days to 4.22%, its highest level since February, 2025 (see the chart). Meanwhile, the yield on the 30-year Treasury has essentially remained flat since Warsh’s comments. That suggests investors view inflation as a near-term challenge that’s unlikely to persist or meaningfully impact growth, thereby increasing the probability of a recession. Ultimately, the Fed is being seen as highly credible in its efforts.

Warsh’s commitment to new and fresh thinking at the Fed was evidenced by the announcement of new task forces, which will examine five areas that Warsh calls central to the broad conduct of the Fed’s monetary policy:

1. Fed communication policy
2. Fed balance sheet policy
3. The Fed’s use of existing data sources
4. Productivity and jobs
5. The Fed’s inflation framework

These efforts may very well result in changes and reforms down the road regarding the amount of detail included in Fed statements, how the Fed gathers and weighs certain data points, and other areas. But while the task forces conduct their due diligence, we expect the next few Fed meetings to be relatively straightforward and focused on the predominant issue of price stability. As long as incoming inflation data is tame, the Fed may take a wait-and-see approach to rates for the time being.

Authored by Mike Dickson

Originally published June 24, 2026

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