BlockBeats news, on September 9, as the U.S. fiscal deficit, inflationary pressures, and the AI funding boom continue to push up long-term financing costs, pressure in the U.S. Treasury market has intensified. What the market is truly awaiting may not be the Fed’s resumption of quantitative easing, but rather Chair Kevin Warsh providing further clarity on his policy “reaction function.”
Global bond yields have continued to rise recently, with the 10-year U.S. Treasury yield currently around 4.80%, nearing its highest level since 2025. Meanwhile, market expectations for future Fed rate hikes are increasing, and investors are concerned that rising U.S. fiscal deficits and corporate financing demands for AI infrastructure could further push up long-term yields.
Wash previously stated at the Jackson Hole symposium that more work remains to be done to combat inflation, which the market interpreted as suggesting the possibility of further rate hikes. The market currently estimates a roughly 60% probability of a Fed rate hike next week; if implemented, it would be the first hike in over three years.
Analysts note that the bond market currently lacks a clear explanation of the Fed's "reaction function"—specifically, which economic indicators the Fed monitors, how it balances inflation and growth risks, and what changes would prompt it to adjust policy. More transparent policy communication would help reduce investor uncertainty regarding inflation and the path of monetary policy.
In contrast, although the Federal Reserve has a balance sheet of approximately $6.7 trillion and can influence long-term interest rates through quantitative easing, the market generally views the likelihood of Powell restarting QE as low. Powell has previously criticized large-scale asset purchases for potentially distorting wealth distribution and has emphasized the importance of the Fed’s independence.
Therefore, in the context of fiscal deficits, inflation, and the AI funding boom all pushing up long-term yields, the Fed’s more realistic option may not be to once again deploy its balance sheet, but rather to use clearer policy communication to convince markets that the Fed will act if inflation pressures persist.