Kevin Warsh is walking a narrower line as bond markets and rate expectations turn more hawkish.
Market pricing now puts the odds of another 25bps hike at a little over 75% for the October meeting, according to CME’s FedWatch barometer at the time of writing. The move would conflict with President Trump’s push for lower rates, which he has pressed for since before returning to office.
The numbers come first. The 10-year Treasury yield is above 5.1%, and the 30-year Treasury is above 5.4%. Deutsche Bank’s Jim Reid said the 10-year sell-off marked the 'biggest daily jump since the market turmoil after Liberation Day in April 2025,' lifting it to a post-2007 high. He also pointed to a weak 5-year auction, with $70bn of notes sold at 5.03%, 3.1bps above the pre-sale yield.
Inflation pressure is also being fed by geopolitics. Markets had hoped talks between U.S. and Iran negotiators could help normalize oil prices, but signs of an agreement remain elusive. Iran’s President Masoud Pezeshkian told the U.N. that it would never 'bend the knee' but was ready for 'dialogue and diplomacy.' Trump said he faced a decision: negotiating or 'annihilat[ing]' the regime.
Oil briefly hit $108 per barrel of Brent crude. Macquarie’s Thierry Wizman said agreements coming out of the meetings may determine whether the war continues and intensifies or whether 'an off-ramp is found.' He added that crude prices still bear on inflation globally and on central bank decisions, calling that a key reason behind recent 'hawkish' rhetoric.
The Federal Open Market Committee has already shown it is no longer willing to 'look through' the supply-side inflation shock tied to the Middle East, at least not if it means ignoring pressures elsewhere in the economy. But Trump’s response after the September meeting suggested he still sees Warsh as too dovish, and also accused the committee of acting politically.
Bank of America’s U.S. economics team said hiking could be 'expedient' even if it draws White House ire. The team wrote that Fed hikes now look less politically difficult and more like an opportunity for Warsh to 'burnish his legacy.' It kept its call for two more hikes, in October and December.
Capital rewards clear rules, and markets are signaling they want the Fed to prove it can still enforce them. If rates rise, the White House gets a political setback; if they do not, the Fed risks another credibility hit while bond yields keep doing the talking.
For investors, the message is blunt: the market has already voted for tighter policy. For Washington, the lesson is familiar. Power leaves a paper trail, and this one is showing up in Treasury yields, oil prices and higher borrowing costs.
