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Yields on long-term government bonds steadied on Thursday, a day after jumping higher, as a chorus of investors and analysts warned that Kevin M. Warsh, the new chairman of the Federal Reserve, had risked the central bank’s credibility by limiting its economic guidance.
The yield on the 10-year Treasury note, which underpins the cost of borrowing from mortgages to business loans, inched lower on Thursday but remained close to its highest level since President Trump returned to the White House. The average 30-year mortgage rate climbed to its highest in almost a year, according to Freddie Mac.
The yield on the 30-year Treasury bond also held steady after hitting its highest level since 2007 on Wednesday.
Mr. Warsh has said that he and his fellow policymakers can gain better insight into what investors really think about the economic outlook if financial markets remain “unfiltered,” meaning they have not first passed through the filter of the Fed’s guidance about how it sees the economy going forward.
But experts said that financial markets would still reflect what investors expected the Fed to do, just with less clarity.
That uncertainty means bond investors are likely to demand higher yields to protect against the risk of losing money if interest rates end up being higher than expected. Higher yields means higher borrowing costs for everyone from the government to companies to consumers. At its worst, it could accelerate concerns about a looming fiscal calamity.
Those worries were visible in financial markets after the Fed’s decision on Wednesday to keep steady the short-dated interest rates it controls, despite inflation remaining stubbornly high.
Three policymakers dissented from the decision, voting to raise rates. During a news conference after the decision, Mr. Warsh declined repeated questions from reporters on how the Fed will tackle inflation, saying only that he was serious about doing so.
Yields on long-term Treasury bonds rose sharply in response.
Alan McKnight, chief investment officer at Regions Bank, said that in the absence of clearer guidance from Mr. Warsh, the move in Treasuries was “a statement about the lack of conviction by the markets that the Fed is going to be willing, and or able, to get inflation down.”
Some investors, however, said the market had reacted as Mr. Warsh intended. In his remarks on Wednesday, Mr. Warsh noted how yields — akin to the market’s interest rates — had moved up in recent weeks, doing some of the Fed’s work of raising interest rates and containing inflation.
Much of the earlier rise in long-term yields this year has come not from inflation expectations but from hefty spending on artificial intelligence infrastructure driving up the growth outlook, as well as mounting concern about unsustainable government borrowing. That rise in yields could naturally help to slow the economy, and inflation with it.
Near term inflation worries tied to the high price of oil could also ease if tensions cooled between the United States and Iran, leading to oil flowing out of the Middle East, which would further aid Mr. Warsh.
Russ Brownback, deputy chief investment officer of global fixed income at BlackRock, said that the market response was “exactly” what Mr. Warsh would have wanted and that he did not agree with the “chatter” in markets that the Fed had lost its credibility on fighting inflation.
“I think everyone needs to take a deep breath and give Chair Warsh and this Fed time,” he said.
In response to Mr. Warsh’s comments on Wednesday, investors have dialed down the likelihood that the Fed will tackle inflation by raising short-dated interest rates. All else being equal, that means inflation is more likely to stay elevated, reflected in rising long-term Treasury yields.
It is hard to parse out exactly how much influence each factor — the Fed, economic growth, the risk of lending to the government — has on prices in the bond market, but it is possible to roughly isolate how much of the recent rise in yields stemmed from investors increasing their longer-term inflation expectations.
The 30-year “break-even” rate, a measure of the market’s inflation expectations over 30 years, rose on Wednesday by the most in one day since Nov. 6, 2024, the day after Mr. Trump was re-elected president.
“Markets appear to be signaling greater uncertainty about the Fed’s ability to keep inflation in check,” said Blair Shwedo, a managing director at U.S. Bank.
Joe Rennison writes about financial markets, a beat that ranges from chronicling the vagaries of the stock market to explaining the often-inscrutable trading decisions of Wall Street insiders.
A version of this article appears in print on , Section B, Page 1 of the New York edition with the headline: Lack of Guidance From Fed Rattles Bond Investors. Order Reprints | Today’s Paper | Subscribe
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