Fed Chair Warsh Does Not Rule Out September Rate Hike If Inflation Rises; 30-Year Bond Reaches 2007 Peak

Quick summary

Fed Chair Warsh indicated that a rate hike could be implemented in September if inflation data comes in strong; this statement triggered a selloff in the Treasury bond market, pushing 30-year bond yields to 2007 levels. The central bank's ambiguous stance continues to increase dollar pressure and economic risks in emerging markets.

Why it matters

The prospect of rate hikes will push bond yields higher, increasing borrowing costs and changing returns on savings accounts. A strengthening dollar will raise product costs for importing businesses, creating inflationary pressure, while putting countries with external debt in a difficult position.

Key takeaways

• ›The 30-year bond yield reached its 2007 pre-crisis peak for the first time in 17 years.
• ›Fed Chair Warsh did not rule out a rate hike at the September meeting, contingent on inflation data.
• ›The central bank's ambiguous messaging created a selloff in the market despite the policy rate remaining steady at 3.50-3.75 percent.
• ›When Fed rates remain elevated, the dollar strengthens, creating currency pressure for emerging market countries.