Fed Watch – 9/25/2026

with lauren saidel-baker

10-Year Treasury Yield Hits 5.2%: What It Means for Fed Policy

This week on Fed Watch, ITR Economist and Speaker Lauren Saidel-Baker examines why the 10-year Treasury yield has reached 5.2%, its highest level since 2007, and what rising bond yields could mean for interest rates, borrowing costs, and financial markets. She also discusses hawkish Federal Reserve commentary, stronger economic data, and why persistent inflation may keep pressure on the Fed to raise rates. Could the bond market be sending the Fed a signal it cannot ignore?

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Key Episode Takeaways

  • 00:02 – 10-year Treasury yield reaches its highest level since 2007
  • 00:15 – Strong economic data and rising expectations for Fed action
  • 01:52 – Kevin Warsh’s evolving view of Fed policy and the neutral rate
  • 03:08 – Persistent inflation and what higher yields mean for future rates
Today the ten-year Treasury yield is 5.2%, this is the highest level since 2007. And the direction of travel is really giving us pause, what is the market signaling with these bond yields? - Lauren Saidel-Baker Share on X
Inflation is here, it is not cooling off. 25 basis points will not be enough to bring it back to heel. So, we're going to see that upside pressure on rates. - Lauren Saidel-Baker Share on X

The below transcript is a literal translation of the podcast audio that has been machine generated by Adobe Podcast.

Ten-year treasuries at their highest yield since 2007. What does that mean for you and for Fed policy from this point forward? I’m Lauren Saidel-Baker and this is ITR Economics Fed Watch for September 25th.

Well today the ten-year Treasury yield is 5.2%. This is the highest level since 2007. And the direction of travel is really giving us pause, what is the market signaling with these bond yields? At some point we do have to acknowledge the pure supply demand factors. So, you’re probably reading a lot about this selling pressure, about lackluster demand for some of these auctions and some of these products. But from an actual Fed side of things, this week, we’ve seen, first of all, a lot of hawkish comments from various members of the Federal Reserve. The market is taking that, and they are pricing in additional Fed action this year. As of today’s odds, we’re showing about a two thirds chance of a move in the October meeting, and a 50/50 chance that we are seeing two moves, that’s 50 basis points of hikes from here, by December. So, as we have been saying for quite some time, inflation is the problem. We actually got some fairly strong economic data this week. We saw first of all the jobless claims number came in that largely met expectations. It was a hair better. We saw new home sales that beat expectations about 684,000 on that print. And we got durable goods just this morning, that also beat expectations. For more on that one specifically, I’m going to steer you to the ITR Economics Trends report, where we’ll do a full write up about durable goods new orders and some of those other factors that we’re watching. But all of this strong economic data, it shows that we don’t really need that accommodative stance from interest rates.

Now, Warsh, if you watched his last press conference, you’ll notice that he’s been kind of hemming and hawing about things like whether this is truly accommodative, where that neutral rate is. He has in fact said in the past, and he called this most recent 25 basis point hike that we saw in September, he called it removing accommodation. So that would suggest that we are still south of the neutral rate, that the economy overall is getting a little lift from those lower rates. But then in the press conference, he was asked where he thinks the neutral rate is and called that largely an academic question, something that doesn’t have real application for the policy that Fed officials are determining. Those two statements really have some tension, either we are removing accommodation or the neutral rate doesn’t matter. It’s hard to square both of those together. But regardless, it’s showing that Warsh is first of all, pushing a new vision, not just in that less communication, kind of the quicker press conferences, the shorter statements, but he’s been stymied in other ways. For example, he’s talked a lot about cutting the Fed’s balance sheet. He really hasn’t been able to push many of those other facets of his agenda here.

So, as we look at this holistically and we say, what is he doing as the new chair? What is the Fed looking to do going forward? I really will steer you again to that inflation outlook. We’ve talked so much about this in the past, so I won’t go through those key drivers today. Please see prior episodes of Fed Watch if you want to go deeper into them or reach out to your ITR economist. But overall, inflation is here. It is not cooling off, 25 basis points will not be enough to bring it back to heel. So, we’re going to see that upside pressure on rates. And back to Walsh’s agenda. He has talked a lot about that lessened communication style being the Fed not giving the market a direction, but really the Federal Reserve looking to the market for a signal and taking the market signals to heart. Well, 5.2% on that ten-year yield, that is certainly a very clear signal coming from the market. We’ll see what the Fed will do with it. I hope you’ll stay with us as we keep that analysis going right here on ITR Economics Fed Watch.