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Fed communication approach tested as long yields jump after rate hold

After the Fed left its key policy rate unchanged, the 30-year Treasury yield rose to above 5.2%, its highest close since 2007, while the 2s10s curve steepened by about 14 basis points.

Reported · Written up by our desk · Central Banks

ConnectCRE highlights how Federal Reserve Chairman Kevin Warsh’s communication strategy was tested after the central bank decided to leave its key policy rate unchanged last week, prompting a sharp sell-off at the long end of the Treasury market.

According to the outlet, the 30-year Treasury yield surged past 5.2%, reaching its highest close since 2007, while the 2s10s yield curve steepened by roughly 14 basis points. It notes that the 10-year portion of the curve was largely steady and that the 2-year yield fell sharply, shifting the move toward longer-run expectations.

ConnectCRE says investors appear less concerned about near-term policy and more focused on the Fed’s longer-term inflation credibility. It argues that Warsh’s departure from explicit forward guidance and his “deliver the 2% inflation target” framing sounded more aspirational than operational because markets wanted a clearer framework.

The outlet concludes that the Fed did not lose credibility for choosing not to raise rates, but because investors could not clearly understand why it chose to hold, particularly after questions about whether inflation justified additional tightening.

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