Fed's inflation pledge fails to convince bond markets

Federal Reserve Chair Kevin Warsh's pledge to achieve 2% inflation was met with market skepticism, as long-dated bond yields surged to multi-decade highs following the central bank's policy decision last week. Bank of America economists criticized Warsh's rhetoric as "all hat, no cattle," noting he often avoided direct questions and hinted at alternative inflation measures, which they viewed as dovish. They expect the Fed to hike rates by 25 basis points in September and twice more in 2026 to restore credibility. The 30-year Treasury yield hit its highest level since 2007 at 5.2%, while the 10-year yield climbed to 4.64%, reflecting investor fears of insufficient inflation action. Rising yields increase financing costs across mortgages and corporate debt, though stocks rebounded on strong earnings from Microsoft and Amazon.