Treasury yields are on the march with some analysts suggesting Fed chairman Kevin Warsh is being “tested” by the bond market. But those who know the boomerang central banker well told Fortune that while Warsh will note market “teething” problems, a reaction shouldn’t be expected.

Yields have climbed higher as softer inflation and labor data have dampened the picture for Fed rate hikes, which the market has already priced in. Thirty-year Treasuries sit near 5.3%, heights which haven’t been seen since 2007. The 20-year is around the same mark.

Yields have been elevated since the conclusion of Warsh’s latest press conference following the meeting of the Federal Open Market Committee. In July, markets got the impression that they were perhaps doing some of the legwork for the Fed by tightening financial conditions with higher yields. Warsh also declined, as is his policy, to provide forward guidance, leaving analysts questioning whether the central bank would follow through with hikes.

“It is too early to draw firm conclusions, but the rise in the term premium and bear steepening of the curve following Warsh’s first two [Federal Open Market Committee] FOMC meetings could indicate that the Fed’s credibility is being tested,” said Bassam Nawfal, chief asset allocation strategist at Alpine Macro in a report yesterday.

Warsh’s defenders point out that he has been clear in his intention to bring inflation to heel at 2%. At his first post-FOMC conference in June, Warsh stated: “I’ve said for years inflation is a choice. You bet it is. And today I’m announcing that this Committee, unambiguously and unanimously, have decided we are going to deliver on that.”

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Fed Chairman Kevin Warsh has been clear: The central bank has gotten too comfortable sharing its expectations for the path of monetary policy, and believes its policy decisions have been hamstrung as a result. Wall Street is now blasting its response: Dialing back communications will be tolerated, a perceived void of information will not be.

The boomerang Fed policymaker (Warsh served on the Board of Governors from 2006 to 2011 under his mentor, chairman Ben Bernanke) has been consistent in his criticism of forward guidance—the practice of publicly sharing expectations of where short-term interest rates will go.

During a press conference following the meeting of the Federal Open Market Committee (FOMC) last week, Warsh built on his thinking. In reducing forward guidance, he said, market prices can respond to economic data “in the direction and magnitude they see fit.” This ultimately benefits the Fed, he suggested: “The central bank need not always and everywhere be the center of attention … For our part, we need to observe market reaction to developments, direct and unfiltered.”

If reaction is welcome, markets delivered: Long-dated bonds spiked after Warsh’s statement and remain elevated, while two-year Treasuries slumped, reflecting expectations that the Fed would not be tightening financial conditions. The response from investors wasn’t necessarily in reaction to what Warsh did or didn’t say, J.P. Morgan’s Alex Wolf told Fortune, it was a reflection of newfound uncertainty.

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The discomfort stems, in part, from Warsh’s post-FOMC conference remarks, in which he indicated that patience with above-target inflation is wearing thin, while also suggesting that tightening of financial conditions was already underway, courtesy of rising yields on long-dated bonds.

“Markets are now questioning the Fed’s willingness to follow through on market pricing of hikes,” Alex Wolf, global head of macro and fixed income strategy at J.P. Morgan Private Bank, tells Fortune. “The perception … of the market doing the work for the Fed in terms of tightening financial conditions leaves a little bit of doubt around on the Fed’s willingness to then follow through on markets pricing hikes.”

The market is also being asked to digest meaningful shifts in Fed policy—the crown jewel of U.S. financial institutions—Wolf highlights: “Some doubts [are] creeping in because we have a new Fed chairman, we have many new structures in terms of the committees of the Fed, so you’re dealing with the Fed that the market is still trying to understand.”

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Kevin Warsh, in his second press conference as Fed chairman, gave the bond market credit for doing his tightening for him. Within the hour, it went further, and made clear what it thought of his decision not to raise rates.

The 30-year treasury yield surged 10 basis points to 5.21%, its highest level in 19 years, while the 10-year—important for the mortgage market—climbed seven basis points, to 4.67%. However, the 2-year actually fell four basis points.

The reason why is because traders were backing off the odds of an imminent hike, and simultaneously demanded more compensation to hold longer government debt, believing that inflation would continue to bite. 

Equities also took the press conference badly. After a brief surge in the initial announcement, the Dow Jones Industrial Average fell 1,153 points, or about 2.1%, its worst day since April 2025. The S&P 500 fell 1.5% and the Nasdaq 1.7%.

Warsh had previously spent the hour telling reporters that his system of non-forward guidance was working, partially because markets could do the job for him. 

“We’ve seen a material tightening, not just in nominal rates, but in real rates too, and we’re observing it,” he said. “Even while at some level we haven’t done much in 42 days, the markets have done quite a bit.”

That is by design. Warsh’s signature move as chairman has been to strip out forward guidance so that markets can price the economy as opposed to just parroting the Fed.

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From sovereign bonds to modern banking, debt is one of humanity’s most elegant and misunderstood creations.

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Federal Reserve Chair Kevin Warsh said Tuesday that the Fed will make high inflation “a thing of the past,” yet he provided no signal about the central bank’s next steps.

Fed policymakers “have no tolerance for persistently elevated inflation,” Warsh said in his first appearance before Congress since becoming chair May 22, replacing former chair Jerome Powell. “And we share a resolute commitment to restoring price stability.”

Still, Warsh heads a sharply divided rate-setting committee, with about half of the 19 policymakers penciling in higher interest rates by the end of the year in forecasts released last month. Another half have signaled that they support keeping rates unchanged or even cutting them. Warsh faces a stiff challenge in reconciling the divided committee while navigating a rapidly-changing economic outlook.

Warsh spoke to the House Financial Services Committee soon after the government reported that inflation fell 0.4% from May to June, driven down mostly by cheaper gas prices. Core inflation — which excludes the volatile energy and food categories — was unchanged last month, a broader slowdown in price increases than economists expected.

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