The bond market on Wall Street follows an unwritten rule: every new head of the U.S. Federal Reserve is tested early. In this case, that test may have already begun before Kevin Warsh officially takes office. The yields on ten-year U.S. Treasury bonds rose by 0.3 percentage points last week to 4.6 percent, marking the highest level in a year.
Investors were also surprised during an auction of 30-year Treasury bonds, which yielded over five percent, a level not seen in 19 years, just before the financial crisis. These developments have temporarily slowed the rally in interest-sensitive tech stocks. The rise in yields is a reaction to increased inflation data from the U.S., putting pressure on the future Fed Chair.
U.S. Donald Trump selected Warsh because he is willing to support calls for lower interest rates. However, Ed Yardeni, an analyst at Yardeni Research, explains that the Fed should actually raise rates in light of rising inflation. This situation presents a challenge that Warsh will need to navigate in his new role.
