Treasury market warns Federal Reserve Chair Kevin Warsh on rates

The bond market has a message for the new Fed chair, and it’s not subtle. Treasury yields have surged well past the Federal Reserve’s current policy rate, effectively telling Kevin Warsh that his benchmark interest rate isn’t high enough to match what the economy is actually doing. Two-year Treasury yields have climbed to a range of 4.15% to 4.37%, comfortably above the Fed’s target policy rate of 3.5% to 3.75%. The 10-year yield has pushed to 4.71%. What the yield gap actually means When the 2-year yield sits 40 to 60 basis points above the federal funds rate, the market is essentially pricing in rate hikes that the Fed hasn’t committed to yet. Market expectations now indicate at least a 25-basis-point hike is priced in by October 2026. That’s a meaningful shift from earlier this year, when many traders were still holding onto the idea that rate cuts might be on the table. Warsh held rates steady at his first FOMC meeting as chair in June 2026 but made a deliberate rhetorical move, stripping out forward guidance language that had previously hinted at potential rate cuts. His first post-FOMC press conference featured what analysts characterized as a hawkish statement. Gone was the ...