A trader works on the floor of the New York Stock Exchange (NYSE) on April 29, 2026, in New York City, USA, as Federal Reserve Chairman Jerome Powell’s press conference after the Fed’s interest rate announcement is broadcast on a screen.
Brendan McDiarmid | Reuters
Ed Yardeni, president of Yardeni Research, said bond market investors believe the Federal Reserve needs to keep up with inflation as new leadership takes over.
Yardeni said Wall Street expects the central bank’s Federal Open Market Committee to abandon its bias toward easing interest rates at next month’s policy meeting. Bond traders are hoping this will lead to tighter monetary policy, the economist said.
Yardeni evidence: 2 years US Treasury The yield is above the federal funds rate (FFR). When this happens, he said, it signals that investors don’t think the FFR is high enough to control inflation.
“The market is indicating that the current FFR is too low to contain inflation and may need to be raised,” Yardeni said in a note to clients on Wednesday.
Yardeni added that the Fed may need to show interest in raising rates after inflation has exceeded its annual target of 2% for five years.
“Simply eliminating moderation bias may not be enough,” he said.
Yardeni’s comments follow a series of inflation figures this week showing a reacceleration of inflation after the Iran war. That could complicate the outlook for Kevin Warsh, President Donald Trump’s pick to replace Federal Reserve Chairman Jerome Powell.
The consumer price index in April rose at an annual rate of 3.8%, the highest rate of increase since 2023. Wholesale inflation rose 6% in April in 12 months, the fastest on record since 2022.
Warsh was confirmed by the Senate this week, promising “regime change” at the central bank. President Trump has long pressured the Fed to lower interest rates, arguing that lower borrowing costs will benefit the economy.
However, federal funds futures traders are pricing in no rate cuts for the rest of the year, according to CMEGroup’s FedWatch tool. The market’s odds of a rate hike have skyrocketed in recent days.
