Inflation won’t die. Now the bond market is daring the Fed to do something about it

A hot war, a trade war, a bad harvest, a snarl in shipping. Supply shocks have come so often over the past six years, KPMG chief economist Diane Swonk told Fortune, that they’ve started to sound like a drumbeat.

“With a drumbeat you get a rhythm,” she said, “and with the rhythm you learn.”

Households and businesses have learned to brace for the next price shock; but the bond market started pricing it in this week. The 10-year Treasury yield touched 4.92% on Thursday, its highest level since 2023 and just shy of the 5% red line feared by Wall Street. Treasury Secretary Scott Bessent’s attempts to strong-arm the bond market have been drowned out by the Iran war’s steady drumbeat, with oil back above $100 a barrel. Now Fed funds futures put the odds of a rate hike next week at roughly 75%, but the bond market, taking Fed Chair Kevin Warsh’s advice, isn’t waiting to play referee; it’s playing the ball.

Swonk’s fear is that letting the........

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