Fed behind the curve on inflation as Warsh takes over
CNBC • • general
Key Points:
- Bond market investors, according to Ed Yardeni of Yardeni Research, believe the Federal Reserve needs to tighten monetary policy further to combat inflation under its new leadership.
- The 2-year U.S. Treasury yield exceeding the federal funds rate signals that investors think current rates are too low to effectively reduce inflation.
- Recent inflation data, including a 3.8% rise in the consumer price index and a 6% increase in wholesale inflation, suggest inflation is accelerating, complicating the outlook for new Fed Chair Kevin Warsh.
- Despite Warsh's promise of a "regime change" and President Trump's pressure to lower rates, market expectations now indicate no rate cuts this year and an increased chance of rate hikes.
- Yardeni warns that simply removing the Fed's easing bias may be insufficient, implying the central bank may need to raise interest rates to bring inflation under control.