U.S. Treasury yields near 2025 highs as market awaits clarity on Fed policy

Huo Xing Finance reports that on September 9, pressure in the U.S. Treasury market has intensified as persistent U.S. fiscal deficits, inflationary pressures, and the AI funding boom continue to push up long-term financing costs. What the market is truly awaiting may not be the Fed’s resumption of quantitative easing, but rather clearer guidance from Chair Kevin Warsh on its 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 have strengthened, and investors are concerned that rising U.S. fiscal deficits and corporate demand for AI infrastructure financing will further push up long-term yields. Previously, at the Jackson Hole symposium, Warsh stated that more work remains to be done to combat inflation—a comment interpreted by markets as signaling 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 increase in over three years. Analysts note that what the bond market currently lacks is 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 a policy adjustment. More transparent communication would help reduce investor uncertainty regarding inflation and the future path of monetary policy. In contrast, although the Fed maintains a balance sheet of approximately $6.7 trillion and could influence long-term rates through quantitative easing, the market generally views the likelihood of Warsh restarting QE as low. Warsh has previously criticized large-scale asset purchases for potentially distorting wealth distribution and has emphasized the importance of central bank independence. Therefore, amid rising long-term yields driven by fiscal deficits, inflation, and the AI funding boom, the Fed’s more realistic path may not involve reactivating its balance sheet, but rather through clearer policy communication to convince markets that it will act if inflationary pressures persist.