Yardeni sees ‘likely’ July rate increase from Fed
The Story
Market veteran Ed Yardeni said the Federal Reserve may need to raise interest rates in July to address bond market concerns. Yardeni, originator of the term “bond vigilantes,” argued that new Chair Kevin Warsh should signal a tightening stance. He stated that a quarter-point rate increase is “likely” at the July meeting, despite market odds being low.
Key Facts
- Yardeni wrote Monday that the “bond vigilantes” are in the monetary-policy driver’s seat and that Warsh “is going to be the odd man out” with his dovish stance.
- He said the Fed must catch up to the bond market to avoid losing control of borrowing costs and to appease the bond vigilantes.
- Yardeni believes a quarter-percentage-point rate increase is “likely” in July.
- The implied probability for a July rate hike is 4.2% per the CME FedWatch tool, while current pricing implies a 42% chance of an increase by the end of the year.
- Treasury yields surged Friday, with the 30-year bond eclipsing 5% to its highest in nearly a year; the long bond Monday morning was little changed at 5.138%.
- Warsh has said he believes the Fed can lower its benchmark rate from its current target range of 3.5% to 3.75%.
- Yardeni sees the Fed holding steady in June but removing forward guidance language that implies the next move will be a cut.
- According to Yardeni, acting hawkishly early could allow lower real-world borrowing costs, benefiting mortgage rates and corporate financing.
Conflicting Reports
Yardeni’s call for a July hike is described as “well outside consensus.” The current implied probability for a July increase is just 4.2%, while the article notes that market odds rise through the year.
Still Unclear
No open questions identified in the source article.
Misconceptions
No widespread misconceptions addressed in the source article.
Key Figures
- Ed Yardeni – market veteran, head of Yardeni Research, originator of the term “bond vigilantes”
- Kevin Warsh – incoming Federal Reserve Chair
- Donald Trump – President of the United States (mentioned in Yardeni’s quote)
