Oil is up again along with bond market yields. Fed rate hike is more likely.
The 10-year yield is the highest since October 16, 2023.
Barr Discusses Decisive Action
CNBC reports Fed Governor Barr Says He’ll Support Rate Hike if Inflation Doesn’t Ease.
Federal Reserve Governor Michael Barr said Tuesday he would be prepared to support an interest rate hike if inflation doesn’t ease.
Speaking at a banking forum in Washington, the policymaker said he’s concerned about “broader price pressures taking hold” as inflation has remained stuck above the Fed’s 2% target for nearly 5½ years.
“If trends in the data give me some confidence that inflation is moderating on a path to 2%, then I think we can take a bit more time to assess our policy stance,” Barr said in prepared remarks. “However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.”
Global Bond Rout Continues
The Wall Street Journal reports Global Bond Selloff Intensifies as Investors Brace for Rate Hikes
- Worries that an impasse in the Middle East will keep inflation hot and force central banks to raise rates are fueling the selloff.
- Also weighing on bonds: Swelling fiscal deficits world-wide, increased competition from corporate borrowers and Fed Chairman Kevin Warsh’s reluctance to give forward guidance.
- The 10-year Treasury yield jumped, and was recently on track for its highest level since January 2025 ; its Japanese equivalent hit 3%, its highest level since 1996 after Scott Bessent hinted at possible BOJ rate hikes.
- Bond yields also rose to multiyear highs in Germany and France.
Crude
- West Texas Intermediate is up $2.74, 3.17 percent, to $88.47.
- Brent is up $3.94, 4.47 percent, to $92.32.
One more bad day and WTIC will be back above $90. And Trump will again claim it’s a small price to pay.
Political Realities May Force the Fed to Hike in September
Yesterday, I commented Political Realities May Force the Fed to Hike in September
It will be a stretch for the Fed to pause for many reasons, not just the CPI.
Today, that looks even more likely.
I stand by my assessment of the “political realities” and those include both Trump and the Fed for different explained reasons.
Markets are setting yields higher across the term structure, and it’s unclear how raising the overnight rate will do much about inflation or anything else except increasing the Fed’s payments to banks on excess reserves (raising the deficit). As the Iran war rages all we have is the blunt instrument of short-term interest rates…? The Trump-Bessent-Fed combo just raise volatility and uncertainty, adding a risk premium to long term rates. The U.S. is not a serious country. It’s up to Congress to give Treasury more tools, like automatic (politically neutral and sector specific) fiscal interventions to tame inflation where it occurs in the real economy. Bring back the days when a President could impose wage and price controls, energy rationing, and use other tools in wartime. Trump the great autocrat-clown can’t do that, it would hurt oil company profits. Meanwhile, Trump’s Big Beautiful Bill cut funding to mass transit causing my local bus service to cut routes, so I have to drive. And so it goes.
Hiking short-term rates means in FED’s jargon anchoring bond yields. Higher short-term rates should cool down demand for money, cool down the economy, bring inflation down and reduce time risk premium.
It is not going to work in situation when White House spends money like drunken sailor in a bar, marketable debt stands at 101% of GDP, this debt costs almost 3.5% p.a., when gasoline/diesel price keeps going up and when price of imported goods will go up too. Import tariffs on Canadian goods will make it only worse.
My feeling is that Barr’s message is rather intended for Republican Congressmen – don’t give White House any additional money, don’t approve $1.5 trillion defence budget. If you do we, FED, will have to act.
Slowly but steadily the situation is getting out of control. Just like everything Trump’s administration touches.
I think you better write an article about the list of excuses the Fed will come up with for NOT raising the rates even by 25 bp in Sept, Oct or Dec.
Gas price has gone up $.30 here in the last 2 weeks. Not looking good!
[…] Also see my post from earlier today, Global Bond Market Rout Continues, Fed’s Barr Ponders Decisive Action […]
“Federal Reserve Governor Michael Barr said Tuesday he would be prepared to support an interest rate hike if inflation doesn’t ease.”
Like he should have done 60 months ago? It’s a joke, I seen no real hikes – 0.25 and .5 bp don’t qualify. Quite frankly the hyperscalers are putting pressure on the market with new supply so yields must go up. This is not a crisis as Druckenmiller noted in his op-ed. I wonder if they’re going to manufacture a crisis to get yield curve control before the mid-terms.
The market is stretched and oil is going up, so I’m not too surprised at today’s action. If Japan starts selling US treasuries and stocks to stabilize the Yen, then that’s when the real action begins.
One month T Bills already at 3.75%….Tell Gov Barr to go back to bed, the market has it.
This is an odd D-Day. I just read the first Higgins boats will arrive on D+30.
Trump detractors are foolishly missing the great improvement in US Treasury bonds is there is now no assurance holders and buyers will get back all their principal. Some said that could not be done. Top of his class. At Wharton! Not just any imbecile can get into Wharton. Chubby Checker Bessent is doin’ The Twist, and it’s a gigantic success: GDP growth just hit 20%.
Given the fact 1/ AI build-up continues 2/ White House slowly moves towards “mowing the lawn” policy in US-Iran conflict we may reasonably expect that sticky inflation will remain present.
If FED increases short-rates it will anchor the long-term rates for a while by reducing inflationary expectations. I am not sure that 25bps interest rate hike will slow down the economy.
But US Federal budget deficit will keep increasing as interest payments will go up and Pentagon will be spending more money.
What can go wrong when federal marketable debt is over GDP is 100% now ?
My guess is that supply of T-bonds will surpass demand for them >> yields go up again.
https://fixupx.com/mhmiranusa/status/2094823204221046784/en
Looks like oil’s hitting 90 today!
Which decisive action, sanctions, tariffs or bombs?
Narrator: inflation didn’t ease.
I simply DON’T understand how so many can blithely predict a “rate hike” at this time.
For years and years we’ve heard and known that higher rates will further damage many debt-reliant sectors of the economy – housing especially.
And send the US government’s interest payments soaring…something they will not tolerate. As I’ve been told.
Yet, “rate hike” mania is all we hear.
I’m very sure the real economy is in the trouble, even though their “data”, which is corporate-centred, not Main Street-centred, says otherwise. To put it frankly, for most people living standards are stagnant to falling.
Logic would predict a rate CUT here, it seems to me.
You may be onto something. The US having to pay higher borrowing costs in the future is not Trump’s problem right now.
How can cutting rates help reverse the problem of rising prices, also called inflation? US citizens are going to take it in the shorts at the expense of the Federal Government if you get your way. Maybe you’re a multi-billionaire playing with the peasants here?
I suspect that price inflation – much oil-driven, not wage-driven – is now embedded in the system and raising rates will accomplish nothing except to impoverish mortgage-holders and businesses that borrow. Raising rates here will not reduce bond yields for very long because those rising yields are deficit-driven.
“Logic would predict a rate CUT here, it seems to me.”
Yeah, but then you are giving consumers money to justify higher prices. Inflation would roar higher. Also since 50% of US consumer spending comes from the top 10% (who own most of the stockmarket), you’ll be handing them a windfall to continue spending at higher prices.
I hear this kind of nonsense from analysts on Bloomberg all the time.
Hey, how about getting out of the middle east to keep a lid on oil, as a solution?
Rate cuts are supposed to be stimulus by encouraging additional borrowing, but Mish wrote a wonderful missive pointing out the fallicy.
How Much Credit Growth Does It Take to Expand Real GDP? – MishTalk
We have past the point where direct stimulus or lowering interest rates to encourage more borrowing has positive efficacy. Does not mean congress or the fed will not do it, but it will be a forgone conclusion that it will not work
Taco’s continued ill-fated policies has made Biden, who he loves to hate, appear a pure genius as compared with his stupid decisions.
Mo debt monetization..gonna run inflation hot as long as they can get away with it
Just look at the comments:
He’s concerned about “broader price pressures taking hold” as inflation has remained stuck above the Fed’s 2% target for nearly 5½ years.
“If trends in the data give me some confidence that inflation is moderating on a path to 2%, then I think we can take a bit more time to assess our policy stance,” Barr said in prepared remarks. “However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.”
If the trend mattered then being above your target rate for 5 1/2 years warranted stronger action some time between 5 1/2 years ago and now, right? Clown.
If the trend shows it is on a path to 2%? How about you consider that a trend toward it after 5 1/2 years is NOT enough, it actually needs to overshoot to the downside to actually help. Clown.
How is not different than a long, drawn out “it’s transitory”?! I guess the Fed monterarist criminals learned you can’t make pompous knowingly false statements like that and instead use language that feigns concern and mindfulness but NEVER act. Same result but you sound compassionate to the masses oppressed by the relentless inflation.
The constant reminder that the Fed Uncertain Principle holds to this day only it’s more egregiously bold and criminal than ever. The step change in inflation that they allowed/foisted upon us during and after covid should earn them a front row spot in hell.
Biden’s one year of inflation was permanent, but these five years of Fed incompetence are surely “transitory”
What a joke. If inflation doesn’t ease? When has inflation been easing beyond short slow downs here and there?
The three legged stool of fools: Trump, The Fed, Congress. They are all sawing each leg off until the stool crashes down and every American that didn’t hop off is about to have their head bashed by the upcoming thud.
By the way, more blasts in the southern region of Iran. Anyone else having massive profitgasms? 😵
Brent at $94 and climbing…..lol.
If you haven’t read this, i recommend. Related through the sovereigns vs AI financing needs
https://www.groundbrkr.com/p/the-teaser-period-why-the-ai-boom
Once again, off balance sheet debt shenanigans
The entire U.S. economy is being gutted by Trumps economic illiteracy.
Our former Department of Defense is now the Department of War and run by another incompetent Trump sycophant.
Yet the Republicans refuse to accept and act on the reality that they have been had by a narcissistic monster that rapes children on a good day, and blows them up on a bad day.
Be prepared for a credit downgrade of U.S. debt and the consequences of the second Trump disaster.
One minor quibble – The Department of WAR is actually an honest name. It hasn’t been a Defensive department for a Long LONG time.
Not lost on all of us is the fact it was renamed to DOW as an act of false alpha male bravado, like the junior pullups that are the best the SOW can muster, unlike real Marines.
If GDP did not include Defense/War spending, it would be an honest number. Recessions are avoided/masked by adding to war spending.
I agree with that as we have been thee aggressors for a log time…
Paybacks are hell!
The war is over. Trump lost. In a couple of months the world will recognize this and we will all move on. The US will quietly close its bases in the Middle East and the gulf monarchies will make their peace with the Persians. The Israelis will not build their 3rd temple and Jesus won’t come back. MAGA will still be leaving empty bottles of cheap bourbon on the lawns of their double-wides.
Yes, but it’s already happening now. The only people who don’t think it’s over are Americans
Would to God that you prove correct.
N.b. the Israelis consider the Third Temple red heifer stuff to be strictly for crackpots. For that matter, so does Trump and his maladministration, otherwise they would not so frantically be amassing for themselves treasures on earth.
Everyone knows it already, except his most mouth breathing MAGA faithful
The Buffet Indicator peaked on 13 Aug 2026 at 240.24. This was the day the music stopped for the 1982 13/33 year money-debt expansion cycle. The Trumpist party, supporting data centers and the Iran and trade wars, the terminal bubble bad-debt expansion catalyst and the oil/consumer goods inflationary pricking catalyst, respectively, is on the hook as the primary identifiable causative agent.
You guys better start buying Japanese bonds pronto!
I have been waiting at least 4 years for these ‘bond vigilantes’ to turn up to this party
Nope. Watch the Fed continue to “stand pat”, make “hawkish noises” and say “The bond market itself is already doing the tightening for us”.
Warsh has had two chances to raise short term rates and he didn’t. In the meantime, Bessent is starting in September through election day injecting liquidity into the banking system by purchasing treasury bonds from MMAs, TBTF banksters and other entities by issuing short term $2T – $4T in treasury bills or a form of Bernanke’s Operation Twist.
Bessent is also bailing out those in the financial industry by purchasing long term bonds through a reverse auction. He is intentionally pushing up demand to raise bond prices.
We will soon find out if Treasury is working at cross purposes of the Federal Reserve or are they working in cahoots.
Concomitantly related, Bessent is also debasing the currency while providing regulatory relief and stimulating stable coin crypto for the billionaires and the Trump family. Those that think he doesn’t know what he is doing are wrong. He perfectly knows what he is doing. He, like Trump and other billionaires that have taken positions in stable coin crypto are getting more wealthy at the expense of those in fixed assets and held in dollars while Trump and congress are directly fighting and funding an inflationary war against Iran and funding another proxy Ukrainian-Russian war that is also inflationary, while Trump raises inflationary tariffs, and both congress and Trump increase the budget deficit and debt, Trump depleting the SPR so creating a diesel shortage by October so more inflation, and finally note where the US Financial Account was headed under Trump I and resumed under Trump II.
https://tradingeconomics.com/united-states/federal-government-net-lending–or-borrowing–financial-account-flow-mil-of-dollar-saar-fed-data.html
If Trump and congress continue on this self destructive path of the hoi polloi while enriching themselves and the billionaire class, there will soon only be crumbs left for the 99%.
The so-called “Vigilantes??”