Warsh's Silence Triggers Credibility Crisis: Traders Fear US Treasury Yields in 'Spiral Upward'

As Federal Reserve Chair Kevin Warsh continues to communicate vaguely on inflation-fighting policies, global financial markets are陷入 unprecedented confusion. According to recent observations from investment firms such as Brandywine Global and Wellington Management, Warsh's credibility in combating inflation is declining, as he refuses to detail a concrete plan to suppress price pressures. Investors are now demanding higher risk premiums on long-term government bonds.

The US bond market is currently experiencing severe volatility. Last week, investors dumped long-dated bonds en masse, causing the yield curve to steepen significantly—reflecting extreme anxiety over long-term inflation outlooks.

Data shows that the 30-year US Treasury yield has climbed to a 19-year high, while the 10-year yield is again approaching the 5% threshold. This unease has spread globally, with long-term interest rates in Germany and Japan also rising in tandem.

Warsh's communication strategy is facing harsh market criticism. Media reports suggest he is considering reducing the frequency of regular policy meetings—a move Highline Asset Management experts describe as a 'bombshell' that could trigger market volatility, forcing markets to bear greater pricing pressure.

Moreover, although Warsh has pledged price stability, he remains evasive about inflation targets and the use of monetary policy tools. This uncertainty has sparked internal divisions within the Fed. Last week, three officials warned that delaying action could force the central bank to adopt more aggressive tightening measures in the future.

The external environment is further complicating the situation. Ongoing Middle East conflicts and the Iran war continue to push oil prices higher, making inflation expectations more entrenched. Brandywine portfolio manager Tracy Chen warns that if the Fed takes no action by September, the 'bond vigilantes' could spiral out of control.

Scott Dimaggio, Head of Fixed Income at AllianceBernstein, believes that if Warsh continues to lack a clear anti-inflation framework, the Fed risks losing control over the bond market.

With the upcoming release of July's employment report and Treasury auction sizes, markets are closely watching the Fed's next move. Kevin Flanagan, Strategy Head at WisdomTree, emphasizes that if economic data continues to point to inflation, the Fed cannot afford to be 'all talk and no action'—it must take concrete steps to restore market confidence.