Bond Market Demands Action from Fed as Yields Surge

The bond market is sending a clear message to Fed Chair Kevin Warsh and the FOMC: take action. The market has been steadily climbing in long-term Treasury yields, with the 30-year yield reaching levels last seen during the financial crisis. This increase in borrowing costs signals that America's massive debt pile and Trumpflation are unsustainable.

With total debt surpassing $40 trillion for the first time, bond traders have responded by selling bonds and increasing yields. The removal of forward-looking guidance from FOMC statements has inadvertently increased volatility in the bond market, making it clear that the Fed needs to act to control inflation, which is currently at 3.7%.

The three regional presidents who dissented in favor of a quarter-point rate hike at the July 28-29 FOMC meeting may have been onto something. With the effects of Trumpflation entrenched in the broader economy, raising interest rates could be the only solution to deliver on Warsh's promise of price stability.

Action may be necessary to satiate a clearly unnerved bond market, but it would come at the cost of higher borrowing costs and potentially disastrous consequences for a historically expensive stock market reliant on debt financing.