Jun 11, 2026
Bond traders are counting on the new Federal Reserve chair Kevin Warsh to do one thing: Raise benchmark interest rates, and soon.
Yields on two-year Treasury notes reached 4.16% on Tuesday, their highest level in a year and sharply higher than the Fed’s current benchmark 3.50% to 3.75%. It ticked down to 4.13% later in the afternoon.
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Two-year bond yields are viewed as a reliable forecaster of Fed interest rates, which influence borrowing costs for credit cards, car loans, and residential mortgages. Hiking interest rates makes borrowing more expensive for consumers.
These yields have climbed since March, illustrating the growing investor expectation that the Fed will be forced to confront inflation with at least one rate hike in the near future. It’s a distinct U-turn from the start of the year, when some financial analysts believed two or even three rate cuts were possible to prop up a lackluster labor market saddled with tariffs and amplified economic uncertainty.
An early test for new Federal Reserve Chair Kevin Warsh
Bond traders and some members of the rate-setting Federal Open Market Committee at the central bank are on the same page.
Dallas Federal Reserve President Lorie Logan said last week at an economic panel in Texas that she believed economic conditions mandate a rate-hike. The Fed hasn’t managed to bring inflation down to its 2% target. It surged to 4.2% last month. Since higher interest rates mean higher borrowing costs, they tend to decrease spending, which puts downward pressure on prices, helping to keep inflation in check.
Logan worried workers and businesses’ expectations of higher inflation will eventually lead to a cycle of rising prices and higher wages.
“I’m increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability,” Logan said.
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Warsh will preside over his first two-day meeting as Fed chair on June 16-17. He took over the Fed from former Fed chair Jerome Powell at the end of May.
Trump repeatedly expressed interest in nominating a policymaker who was aligned with his preference for lower interest rates after lambasting Powell for months and opening a criminal investigation since dropped) into his management of Fed renovations. The president eventually settled on Warsh, a former top Fed official who cultivated a reputation as an “inflation hawk” who opts to prioritize taming prices over fortifying the job market.
The case for lower interest rates has all but collapsed for now. Higher oil and commodity prices as a result of the Iran War are driving up inflation. In addition, the AI development frenzy has strained data chip supplies and pushed up utility prices in parts of the U.S.
At the moment, Trump has refrained from pressuring Warsh on interest rates. “Kevin is fantastic, and I want him to do whatever he wants,” Trump told NBC News in an interview that aired Sunday. “I don’t want to have a big influence on him.”
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How many rate hikes are likely in store
The recent report of 172,000 jobs added in May delayed some major banks’ expectations of a rate-hike, even as bond traders pushed the Fed to take inflation seriously.
Goldman Sachs is forecasting that the Fed will sit still on interest rates and not cut them until 2027, Reuters reports. Then BNP Paribas predicts three rate-hikes starting in December, which would wipe out the rate-cutting campaign that the central bank carried out in 2025.
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Joseph Zeballos-Roig is a policy and politics journalist based in Washington D.C with a focus on economics. He is experienced in connecting the significance of events in the capital to the lives of everyday Americans whether its taxes, tariffs, interest rates or federal programs.
