The Fed’s New Boss Has a Promise to Keep. The Bond Market Isn’t Fully Buying It Yet.

Kevin Warsh walked into his first public moment as incoming Fed chair Tuesday and made a bold pledge: he will make inflation “a thing of the past.” The bond market heard it, processed it, and shrugged just enough to be interesting.

Here’s the tension worth watching. June’s CPI came in at 332.6, down from 333.9 in May. That is a month-over-month price decline, and core CPI ticked down too, from 336.121 to 336.065. On the annual basis, the headline number came in at 3.5%, below the 3.8% consensus. That is a real, measurable cooling. And yet the 10-year Treasury yield sits at 4.62%, with the 10-year breakeven inflation rate at 2.25%. Bond investors are not panicking, but they are not declaring victory either. A 4.62% yield against a 2.25% inflation expectation still implies a meaningful real rate, which tells you markets want more proof before they fully believe the inflation fight is won.

Stocks gave back ground Tuesday, with the Nasdaq sliding 1.55% to 25,873, while financials and industrials actually outperformed. That mixed picture is worth watching.

On deck today: Producer Price Index data prints this morning. If PPI follows CPI lower, it builds a stronger case that disinflation is running through the pipeline, not just showing up at the consumer level.

Why it matters: A new Fed chair’s credibility is built in the first few months. Warsh’s promise and the incoming data are now on a collision course, and the bond market will be the referee.

The deeper read on what a credibility-driven Fed transition means for the rate cycle lands Sunday in The Long View. Free to join.

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