Fed's Warsh at Odds with Markets Over Inflation Policy

Federal Reserve Chairman Kevin Warsh's statements on inflation have sparked a sharp selloff in bonds, leaving him with a difficult choice between defying President Donald Trump's desire for easier monetary policy or battling fellow central bankers who want to tighten it.

The market reacted negatively to Warsh's declarations that he would bring down inflation without signaling a readiness to raise interest rates. The 30-year Treasury yield rose above 5.2%, its highest level in 19 years, as investors lost confidence in the Fed's ability to control inflation.

Warsh hinted at potentially changing the Fed's yardstick for successfully containing inflation from a 2% year-over-year rise in the Personal Consumption Expenditures Price Index. He also mentioned that he would check in with outside experts who are reviewing the Fed's conduct of monetary policy, including its inflation framework.

The situation is further complicated by the fact that three out of 12 voting policymakers dissented on Wednesday against leaving the central bank's benchmark interest rate unchanged. They and others are expected to call for action soon, particularly if inflation does not ease over the summer.