Fed's Stance on Inflation Sparks Market Backlash

The Federal Reserve left interest rates unchanged at its latest policy meeting, but the market's response was anything but neutral. The yield on the 30-year U.S. Treasury bond spiked over 5%, touching levels not seen since the global financial crisis of 2007.

Ed Yardeni, president of Yardeni Research, said that the Fed has to raise short-term rates to lower long-term rates and that a hawkish stance without acting on it reduces the Fed's credibility. He noted that 'once again, the Bond Vigilantes are pushing bond yields higher. In effect, they are saying that if the Fed won't be vigilant about inflation, then they will have to maintain law and order in the economy.'

Peter Schiff, CEO of Euro Pacific Capital, also commented on the market's reaction, saying 'the bond market is giving the Fed's decision to choose inflation a thumbs-down.' DoubleLine Capital CEO Jeffrey Gundlach said that the Federal Reserve will have to shift gears to do more than talk tough.