Bond Market Demands Action as US Debt Hits $40 Trillion

Fed Chair Kevin Warsh has made significant changes since taking office, including removing forward-looking guidance from Federal Open Market Committee (FOMC) meeting statements. However, he and his FOMC colleagues have yet to take action amid persistently elevated inflation.

The bond market is sending a clear message: it's time for the Fed to act. Treasury bond yields at the long end of the yield curve are soaring, with the 30-year yield reaching levels last seen during the financial crisis. This surge in yields is driven by two main factors: America's staggering debt pile and President Donald Trump's tariffs.

The total national debt has surpassed $40 trillion for the first time, and higher yields signal that massive federal deficits aren't sustainable. Moreover, Trumpflation is increasing consumer prices, with Core Personal Consumption Expenditures (PCE) indicating that its effects have spread beyond the energy sector.