Fed Chair Kevin Warsh Lists Forces Driving Bond Yields Higher: Strong Economy and Global Turmoil, Not Inflation

The U.S. Federal Reserve raised the benchmark interest rate to 3.75%–4% on Wednesday, the first increase since 2023, with a unanimous board vote. The decision comes at a moment when U.S. bond yields remain at elevated levels, raising questions about the forces pushing them higher.

At the press conference after the meeting, the new Fed chair, Kevin Warsh, was asked which forces are lifting yields. He listed several: the strength of the American economy and stiff competition for capital, driven by rising capital spending — with tech giants, the so-called “hyperscalers”, raising funds in markets for their investments. He also mentioned turbulent global political factors, saying hot spots are pushing long-term yields higher, not just energy prices.

Equally significant was what was left out of Warsh’s list: the loss of confidence in the Fed’s resolve to fight inflation, direct concern about inflation itself, or the sustainability of U.S. debt — which has surpassed $40 trillion.

Warsh’s view aligns with that of New York Fed President John Williams, who has described the rise in yields as a reflection of the economy’s strength, driven by investment in artificial intelligence and data centers.

Warsh dismissed the idea that markets forced the Fed to raise the rate. “I’ll watch market prices… But today it was our decision,” he said.

Source: Reuters