①Subadra Rajappa, Head of Americas Research at Societe Generale, stated that the U.S. Treasury market, which has fallen into panic due to accelerating inflation, will become the first major test for Kevin Warsh, the new Federal Reserve Chairman; ②This week, the decline in U.S. Treasuries deepened, with the 10-year Treasury yield hitting its highest level in nearly a year. The market has increased bets on Federal Reserve rate hikes, with the probability of a rate increase within the year exceeding 50%.
Cailian Press reported on May 16 (edited by Zhao Hao) that Subadra Rajappa, Head of Americas Research at Societe Generale, stated that the U.S. Treasury market, which has fallen into panic due to concerns over accelerating inflation, will be the first significant test for Kevin Warsh, the new Federal Reserve Chairman.
Rajappa said on Friday (May 15) during an interview that growing signs indicate that the surge in energy prices triggered by conflicts in the Middle East is intensifying inflationary pressures in the United States, making the interest rate cuts advocated by Warsh (and demanded by Trump) more complicated.
Rajappa commented, "I am starting to feel somewhat concerned because U.S. Treasury yields clearly seem out of control. I believe we should really pay close attention to the signals being sent by the bond market."
As the week drew to a close, the decline in U.S. Treasuries intensified. Earlier, Brent crude oil broke through $109 per barrel during trading, while inflation data at both retail and wholesale levels exceeded the expectations of most analysts, exacerbating market sell-offs.
Intraday, the 10-year U.S. Treasury yield reached a high of 4.599%, the highest level in nearly a year; the 2-year Treasury yield once rose to 4.086%, hitting a new high since March 2025; the 30-year Treasury yield also touched its highest level in nearly a year.
The U.S. Consumer Price Index (CPI) released on Tuesday showed a year-over-year increase of 3.8% in April, marking the highest level since May 2023; the Producer Price Index (PPI) released on Wednesday showed a year-over-year rise of 6% in April, the largest increase since December 2022.
This series of developments prompted traders to increase their bets on the Federal Reserve's next rate hike. The CME Group’s “FedWatch” tool shows that the market currently believes the probability of the Fed raising rates within the year has exceeded 50%.
Just on February 27 — the day before the joint military strikes by the U.S. and Israel on Iran — traders had expected the Federal Reserve to cut rates at least twice this year. This sharp reversal underscores the challenges faced by Warsh.
Earlier this week, the U.S. Senate formally confirmed Warsh to succeed Powell as the next Federal Reserve Chairman for a four-year term. He will preside over his first Federal Open Market Committee (FOMC) meeting on June 16-17.
Rajappa stated, 'What is truly, truly important for Wash is controlling inflation expectations.'
She added, 'Once inflation expectations begin to spiral out of control, he will be in serious trouble. For the Federal Reserve, it is crucial to shift its policy stance from accommodative to neutral and be prepared to take action if necessary.'
Editor/Stephen