2026-07-29XQuote

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Core PCE removes food and energy (oil) and is the Fed's favorite inflation measure. It is 80 bps higher than in April 2025. The post-COVID average and std dev (blue) "step-functioned" higher than the previous two cycles (red and green). We are in a new higher inflation regime post-COVID. The era of sub-2% inflation ended six years ago; that was the previous cycle. So, in this environment, don't be surprised that when the Fed cuts rates, the 30-year yield goes straight up and is a few basis points from a 19-year high (repost). Warsh said, "Inflation is a choice." If the Fed "chooses" to do something about it, then the bond yields calm down. @tmaxftw

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The chart below starts on Sept 18, 2024, the FOMC meeting at which they kicked off the rate-cutting cycle with a 50 bps move. 30-yr yields went straight up (I would argue in response to that cut) and, on May 19, 2026, hit a 19-year high of 5.18%. I continue to argue that the problem is that the Fed has not been taking the inflation "problem" seriously, and that the bond market has been rejecting its easy policy. So, a surprise hike might "fix" the bond market rather than worsen it. The Wall Street adage "bond investors can stop panicking when the Fed starts panicking" applies. A little Fed-driven panic about inflation might calm bond investors. Holding steady and the yield uptrend below will just continue until they do "choose" (Warsh's word) to deal with inflation.
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