Bond market believes Fed behind the curve on inflation as Warsh takes over

A trader works, as a screen broadcasts a news conference by U.S. Federal Reserve Chair Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., April 29, 2026. Brendan McDermid | Reuters Bond market investors believe the Federal Reserve needs to play catch up on inflation as its new leader takes over, according to Ed Yardeni, president of Yardeni Research. Wall Street expects the central bank's Federal Open Market Committee to relinquish its bias toward easing rates at the policy meeting next month, Yardeni said. Bond traders are hoping that is replaced with a slant toward tighter monetary policy, the economist said. Yardeni's evidence: The 2-year U.S. Treasury yield is above the federal funds rate, or FFR. When this happens, investors are hinting that they do not believe the FFR is high enough to bat down inflation, he said. "The market is signaling that the current FFR is too low to curb inflation and may have to be hiked," Yardeni wrote in a Wednesday note to clients. The Fed may have to show a willingness to hike interest rates after five years of inflation running above its annual target of 2%, Yardeni added. "A simple removal of the easing bias may not be enough," he said. Yardeni's comments follow a series of inflation readings this week showing a reacceleration in the wake of the Iran War. …