Bond Market Sends Warning Shot Over Fed's Inflation Tactics

The bond market sent a clear message to Federal Reserve Chairman Kevin Warsh: tough talk about taming inflation is not enough. After the Fed kept interest rates unchanged for a seventh straight month, investors dumped 30-year Treasury bonds, causing yields to shoot up by as much as 14 basis points to nearly 5.23%, a 19-year high.

This surge in bond yields and subsequent rise in market measures of inflation expectations sent shockwaves through the markets. The dollar slid, and even stocks tumbled as investors wagered that Warsh was only delaying the inevitable action against inflation.