Interest rates

Published on
14/05/2026 – 14:35 GMT+2

Long-term US borrowing costs climbed to levels not seen since before the global financial crisis after the Treasury auctioned $25bn (€21.3bn) in 30-year bonds at a high yield of 5.058% on Wednesday, according to the department’s own data.

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The sale came only hours after the US Senate voted to confirm former Federal Reserve governor Kevin Warsh as the next chairman, succeeding Jerome Powell.

The auction result immediately complicated the backdrop for Warsh’s arrival at the central bank, underlining the pressure facing policymakers as inflation is rising.

At the time of writing on Thursday, US 30-year bonds are trading at 5.02% while 10-year notes are selling with a yield of 4.44%.

US inflation figures released earlier this week showed consumer prices rose 3.8% from April 2025 as the 10-week Iran war pushed energy costs higher and distanced inflation from the Federal Reserve’s 2% target.

Producer price data also pointed to persistent underlying cost pressures across the economy, reinforcing expectations that the central bank may struggle to ease monetary policy quickly.

Rising Treasury yields have broad implications for the economy because they influence borrowing costs on mortgages, corporate debt and other forms of credit.

Higher long-term yields can also increase financing costs for the US government at a time when public debt is nearing $40 trillion (€34.1tn).

Investors are increasingly concerned that a combination of resilient economic growth, elevated energy prices and sustained government borrowing could keep inflationary pressures alive despite two years of restrictive monetary policy.

The yield on the benchmark 30-year Treasury bond being auctioned above 5% is a symbolic threshold last reached in 2007 before the onset of the global financial crisis.

While market conditions today differ substantially from that period, the move nonetheless underscores the sharp repricing that has taken place in global bond markets over the past two years.

Kevin Warsh inherits a difficult policy environment

Kevin Warsh takes over the Federal Reserve at a delicate moment for the US economy.

The former Morgan Stanley banker and Fed governor has previously argued in favour of maintaining the central bank’s credibility on inflation, while also signalling support for reforms to the institution’s communication strategy and balance sheet policies.

Warsh’s confirmation comes as financial markets remain divided over how aggressively the Federal Reserve should respond to persistent inflation pressures.

Some investors believe rates may need to stay higher for an extended period, while others warn that maintaining tight monetary conditions for too long could weigh heavily on economic growth and employment.

The main driver of the rise in inflation is the current disruption to global energy markets caused by the Iran war which also leaves the central bank at the mercy of geopolitics and not able to effectively control the situation.

Analysts stated that Wednesday’s Treasury auction illustrated the immediate challenge confronting the incoming Fed chair.

Elevated bond yields can help tighten financial conditions without additional rate increases from the central bank, but they can also amplify risks for heavily indebted households, businesses and the federal government itself.

For Warsh, the market reaction served as an early reminder that restoring confidence on inflation may prove more complicated than simply holding interest rates at restrictive levels.

Kevin Warsh, the man nominated to lead the Federal Reserve, the world’s most important financial institution, told the US Senate Banking Committee on Tuesday that he had made no secret agreements with the White House over interest rate policy, defending his professional integrity.

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He said he would act independently if confirmed to succeed Jerome Powell, despite continued public pressure from US President Donald Trump for lower borrowing costs.

The question of that independence was put sharply to him during the hearing, when Republican Senator John Kennedy asked whether he would be Trump’s “human sock puppet”. Warsh replied: “Absolutely not.”

His comments came amid broader concerns on Capitol Hill about the future direction of the central bank, with lawmakers divided over his past record and approach to monetary policy.

Warsh insisted that the President had never asked him to commit to any specific interest rate path and said he would not have agreed to such a request.

The hearing highlighted the significant pressure facing the Federal Reserve as it maintains its independence while addressing inflation, which remains at 3.3%.

Just hours before the session began, US President Donald Trump stated in a CNBC interview that he would be disappointed if Warsh did not immediately implement rate cuts.

This current friction suggests that the White House may struggle to secure the necessary votes to confirm Warsh before Powell’s term as Fed Chair expires on 15 May.

Democratic opposition and Republican dissent

Democratic senators were particularly vocal in their scepticism, accusing Warsh of shifting his economic stance to suit the political climate.

US Senator Elizabeth Warren labelled the nominee a “sock puppet”, suggesting his installation would facilitate an “illegal takeover” of the institution.

Critics also pointed to his historical record, alleging that he favoured higher rates during Democratic administrations but has become more dovish under Republican leadership.

US Senator Ruben Gallego cited reporting from the Wall Street Journal (WSJ), which claimed the President had previously urged Warsh to reduce borrowing costs. Warsh responded by stating that such reports were based on inaccurate sources and reiterated that the independence of the Fed is “essential” for economic stability.

Despite Trump’s backing, the nomination also faces a critical roadblock within the Republican Party.

US Senator Thom Tillis, a Republican from North Carolina, reiterated his refusal to support Warsh as long as a Department of Justice investigation into Jerome Powell continues.

The probe, led by Assistant US Attorney Jeannine Pirro, is examining whether Powell committed perjury during testimony last year regarding the budget of a Federal Reserve building renovation project.

Tillis and other Republican colleagues have expressed their support for Powell, arguing that the investigation is meritless. According to Tillis, he will not vote for a successor until the “investigation is dropped,” a stance that effectively freezes the nomination in a closely divided committee.

Federal prosecutors have reportedly continued their efforts to access Fed records as recently as last week, even after a judge previously found no evidence to support the charges.

Legal and ethical hurdles

The proceedings also delved into Warsh’s personal financial interests and the logistical challenges of a potential leadership transition.

US Senator Elizabeth Warren raised questions about the nominee’s investments in private entities, including SpaceX and Polymarket, noting that the specific size of these holdings had not been fully disclosed to the public.

Warsh defended his position by stating that the Office of Government Ethics has already approved his plan to divest all assets within 90 days of his confirmation.

Compounding the uncertainty is the unique situation involving Jerome Powell.

Unlike most departing Chairs, Powell has indicated he intends to remain on the Federal Reserve’s governing board until his separate term ends in 2028, or until the perjury investigation is concluded.

This could create an awkward power dynamic where the former Chair sits alongside his successor, a scenario not seen in Washington since the late 1940s.

While US President Donald Trump has threatened to remove Powell from the board entirely, legal experts suggest such a move would be difficult, particularly given recent US Supreme Court precedents relating to the protection of Fed governors from political dismissal.

Published on
22/04/2026 – 10:40 GMT+2

The cost of living in the UK accelerated throughout March, propelled by a significant increase in petrol and diesel prices following the outbreak of the Iran war.

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According to the Office for National Statistics, the annual consumer price inflation rate moved to 3.3% from 3% the previous month, a shift that matched the forecasts.

This inflationary pressure is largely attributed to an 8.7% monthly jump in motor fuel costs, which represents the sharpest rise seen since the summer of 2022, following Russia’s full-scale invasion of Ukraine.

Beyond the petrol stations, the fallout from higher energy prices has trickled down into airfares and food supplies, complicating the economic landscape for the government and the Bank of England.

UK Treasury chief Rachel Reeves noted that while the conflict is not a domestic one, it is directly pushing up bills for families and businesses across Britain.

Lindsay James, an investment strategist at Quilter, observed that “this morning’s inflation data showed CPI creeping back up to 3.3%, confirming that price pressures are re-accelerating rather than fading away since the outbreak of the war in Iran.”

While international markets have shown some signs of recovery in equity prices, the physical market for oil delivery into Europe remains under immense strain.

Experts suggest that a swift reopening of the Strait of Hormuz is the only viable path to unwinding the current inflationary trend, yet the situation remains volatile and unpredictable.

The Bank of England’s policy dilemma

The timing of this inflation surge is particularly problematic because it coincides with a period of cooling in the domestic economy.

Recent data from the labour market indicates that payrolled employment is falling and economic inactivity is on the rise, while wage growth has started to ease.

For the average British worker, the combination of rising essential costs and stagnating earnings growth creates a challenging environment for real purchasing power.

As for the Bank of England, this sudden spike in prices has disrupted the projected path of beginning to lower borrowing costs this spring.

Prior to the escalation of the Iran war, there was a growing consensus that the central bank would reduce its main interest rate from 3.75% as inflation appeared to be heading back toward the official 2% target.

However, with inflation now expected to potentially hit 4% in the coming months, the Monetary Policy Committee faces a much more difficult decision during its meeting next week.

There is a growing debate among economists regarding whether traditional interest rate hikes are the correct tool to address this specific crisis.

According to James “a rise in rates risks misdiagnosing the problem. This inflationary pulse is being driven by supply disruption, not excess demand. Higher interest rates will do nothing to increase the flow of oil or other goods from the Middle East.”

This sentiment suggests that the Bank of England may choose to maintain its current stance, keeping rates on hold while monitoring whether these price increases begin to manifest in higher wage demands across the broader economy.