Yields Rise As The Fed Begins “A New Chapter”

The new Fed Chair is focused on inflation and fresh thinking

At his first press conference as the new Federal Reserve Board Chair, Kevin Warsh made it clear last week that controlling inflation is on his mind. He pledged to make price stability his top priority, while promising “fresh thinking” and “a new chapter” at the world’s most important central bank.

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.