Trump’s New Fed Stooge Gets a No Confidence Vote From the Bond Market
Jerome Powell is no longer Chair of the most important financial institution in the world, as Kevin Warsh oversaw his second meeting atop the Federal Reserve this week. Fedsday as it is affectionately called only by nerds like me, is an important day for the economy, a nearly monthly checkup at the money doctor where all of us attempt to soberly and analytically analyze where our health is and where it’s headed. Markets watch what the Fed chair says very carefully, and while this stuff can be incredibly complicated to understand for folks who are steeped in finance—let alone normies who rightly view this field as witchcraft and alchemy-adjacent—this is where charts come in handy. One must always stay vigilant against the widespread scourge of chart crimes, but sometimes one simple little squiggly line can explain everything.
Warsh began speaking around 12:30 pm my time on Wednesday, and went for about 45 minutes. I have marked each time with a vertical line on the intraday chart of the 30-year U.S. Treasury yield below. In bond yield land, up is bad and down is good, and it doesn’t take a degree in finance to understand how the market reacted to the things that Trump’s new Fed stooge said on Wednesday.
Chart via TradingView
That is the market collectively realizing that this guy does not have a handle on our very treacherous situation right now where inflation is at 4%–double the Fed’s target and nearly halfway to the 9% high from 2022 that drove seemingly half the country to madness. I have written about stagflation and the 1970s ad nauseum since Joe Biden’s head exploded on live TV, and that entire fucking time, long-term borrowing rates for the United States of America have been up only. That chart above is zoomed in on five-minute increments, so let’s zoom way out to monthly increments and look at the history of the 30-year U.S. Treasury yield since the late 1980s and where we currently stand relative to it.
Chart via TradingView
That is a 19-year high we are currently sitting at, and we have long been hanging out above last year’s TACO Trump number of 5%, where every time the long end of the yield curve approached that figure, Trump folded like a lawnchair in a hurricane in his trade war. Now he’s just keeping his hand on the TACO stove all day for funsies. This is very bad in a very tangible way that affects you and I far more than the AI psychosis of the stock market does. We are on pace to pay $1.05 trillion in interest payments on the debt this year, $50 billion more than we will spend on Pete Hegseth’s Department of War. We do unfortunately have to become deficit scolds, because long-term interest rates are rising across every advanced economy surpassing a debt to GDP ratio of 100%—or well over 200% in Japan—and no government anywhere has any kind of long-term plan to bail us out of these problems that climate collapse will only exacerbate and make more expensive. Unless something changes, it will simply be more expensive to borrow for the rest of our lives than we have become accustomed to this century.
Kevin Warsh didn’t create these problems, he just inherited them, and it’s his job to manage them as one of the world’s most important financial players. His speech on Wednesday was a more detailed pitch for his new ideas on how to be one of the world’s most important financial players, which all amounted to basically not being that, and the market recoiled in horror. The Dow had its worst day since April 2025 around Liberation Day, and interest rates for 3-year U.S. Treasuries and longer are up since he started speaking, while those with shorter durations are down, which are, say it with me again now for the quadrillionth time: stagflationary dynamics (to over-simplify a very complex market, that is the market anticipating lower economic growth in the near-term due to higher inflation that will stay persistently sticky in the long-term, and it’s also adjusting rate hike expectations down based on Warsh’s presser).
“Warsh’s no-guidance approach is already backfiring,” said Francesco Pesole, a strategist at ING, to the Financial Times. Pesole pointed to the long end of the yield curve I detailed in the charts above and said it “looked very much like a loss-of-confidence trade.” Ben Emons, managing director of fixed income at Highline Asset Management and founder of FedWatch Advisors, criticized Warsh’s more hands-off philosophy by telling Bloomberg that “Being hawkish without taking action is a convenient way to let markets judge for themselves and let markets tighten Fed policy. [But] this could backfire when inflation accelerates, and the market judges the Fed is once again behind the curve.”
That “backfire” sentence is a tl;dr description of the 1970s. Again I will let the squiggly line on the 10-year U.S. Treasury yield tell the story below (the 30-year was created in 1977). Look at how the inflation spike on the left side of the chart from 1969-1970, driven in large part by heavy government deficits from Vietnam, subsequently fell down like our spike of 2022 did in response to Fed action, and then creeped back up like ours has, but unlike ours yet, ended up higher five years later as an increasingly shambolic Fed that cut rates too early lost control of a delicate inflationary situation amidst an energy crisis that really spiraled out of control later in the decade on the right side of the chart. Don’t worry, I’m sure there’s no parallels in this saga to today!
Chart via TradingView
Hopefully we are not building up to our own Volcker shock on the right side of that chart where a new generation of cranky adults will roll their eyes at people freaking out over 6.66% 30-year mortgage rates (yes, really, that’s the current average rate—the market is demonic right now); but that is the subtext of the market selling U.S. government debt in response to the things that Trump’s new Fed Chair said. They are trying to get out ahead of an inflationary clusterfuck that seemingly is only getting worse under a president convinced that 1% interest rates are a panacea for every economic woe.
At the core of the market’s rebuke of Warsh is his deviation from giving forward guidance, and foregoing the part of the Fed’s job where they let investors know what their highly sophisticated financial models are telling them about the economy just around the corner. There is a legitimate critique to be made that this new age of parsing every syllable out of the Fed Chair’s mouth has gone too far, but the idea that Warsh put forward that trillions of dollars are being managed by people basically just following whatever the Fed says every month is insane. I know some of these people, I promise you their operation is more sophisticated than the WallStreetBets Reddit thinking the Fed Chair’s job is to tell them when to buy meme stocks. Warsh actually pointed to the recent uptick in interest rates as a good thing, saying “Prices reacted in real time to incoming information, and the reduction in forward guidance may have been a factor. Market participants are learning to play the ball, not the referee.” In short, the market did his job for him by raising interest rates.
This is all fine and dandy for anyone picking up their first copy of Atlas Shrugged, but he is the fucking Fed Chair and the entire point of finance is accurately assessing risk and charging people for it. What Warsh is doing is intentionally injecting more risk into markets by reducing transparency and thus creating a more expensive and less efficient market more prone to surprise shocks where ultimately, people pay more for everything to compensate for the increased risk he has created. This is basic stuff, and I can’t help but wonder if there is an ulterior motive to Warsh’s desire to not tell markets where he thinks markets are going.
Inflation is up only right now, the war with Iran has no end in sight as they threaten to close another major oil chokepoint, and last quarter, GDP growth was weaker than expected at just 1.5%, all while AI jitters roil an increasingly bubbly stock market that finally checked the last classic top signal box with the SpaceX IPO that looks like a SpaceX rocket launch. The story of last year was how resilient the economy proved to be in the face of Trump’s attempts to wreck it, but so far this year, the story is that tariffs brought inflation back before oil made it worse, and oh yeah major economic consequences generally lag behind the initial event. We are in a new world where a Fed Chair is going to have to make some very difficult decisions and likely raise interest rates at least in the short term to deal with Trumpflation, but that’s not why Warsh is here.
“Oh, he’s going to lower [interest rates],” said Trump about Warsh in a February speech where he supposedly joked about suing him to make him do what Jerome Powell wouldn’t. “I hope he’s going to lower, but you know, he’s gonna have to do what he wants to do.” The Fed Chair is an ultra-prestigious position that market participants take deadly seriously, and after coming in last month, they gave Warsh the benefit of the doubt that he was going to do what it takes to be the sober economic guide his position requires. But his desire to not tell markets what he thinks about them and assume that AI is going to do all the disinflationary work for the Fed while bond traders take care of inflation is not how this works. That’s not how any of this works, and markets are clearly spooked after seeing Warsh for what he is: a stooge put in place by Trump to find a way to drop rates to 1%, the bleak history of the 1970s be damned.
