U.S. Treasury yields surged Friday after oil prices moved higher and some Federal Reserve officials said they favored raising rates to slow inflation, even as the central bank had voted 9-3 on Wednesday to keep its key interest rate steady in a range of 3.5% to 3.75%. The people at the bottom get the bill either way. Higher borrowing costs, pricier energy, and another round of warnings from the monetary priesthood all landed on ordinary households while the Fed kept its grip on the economy intact.
The benchmark 10-year Treasury note rose nearly 5 basis points to 4.71%, the 2-year Treasury note yield climbed more than 4 basis points to 4.273%, and the 30-year Treasury bond yield also gained more than 4 basis points to 5.249%. One basis point equals 0.01%, and yields and prices move in opposite directions. Markets moved fast. The central bank’s decision, and the chatter around more tightening, kept the pressure on anyone trying to borrow, buy, or keep up.
Who Has the Power
Cleveland Fed President Beth Hammack said in a statement, "In my view, now is the time for the [Federal Open Market Committee] to act to speed the return of PCE inflation to our 2 percent objective and deliver on our commitment to price stability for the American people." She added, "The longer that high inflation persists, the more challenging and costly it can be to bring it back down." Minneapolis Fed President Neel Kashkari said he believes small hikes now can prevent the need for larger moves later. "In my view, a potential series of small policy moves would be better than waiting and eventually concluding that even bolder actions were necessary," Kashkari said.
That’s the language of managed pain. The Federal Reserve speaks in the name of "the American people," but the tools it wields are interest rates, bond yields, and discipline imposed from above. The people who never get a vote on these moves still live with the consequences.
Oil prices rose after Iran said it attacked two tankers transiting the Strait of Hormuz. West Texas Intermediate futures rose 2.2% to $85.41 per barrel, and Brent crude futures, the international benchmark, gained 1.5% to $90.36. The move in energy prices also hurt sentiment toward bonds. Energy shocks travel straight into household budgets, and the market response only sharpens the squeeze.
Who Gets Crushed
On Thursday, the Commerce Department said the all-items personal consumption expenditures price index fell 0.1% for the month, largely on a sharp decline in fuel costs, while the core level that excludes food and energy gained 0.1%. On an annual basis, the two gauges rose 3.7% and 3.3%, respectively. Economists polled by Dow Jones had expected 0.2% monthly growth and 3.3% annually for core PCE. The core PCE reading remained above the Fed's target.
The same day, GDP data showed U.S. growth slowing to 1.5% in the second quarter, missing the Dow Jones consensus estimate of 1.8%. A separate opinion piece said second quarter gross domestic product, according to an advance estimate released July 30, recorded a 1.5% rate of growth. It said that was slower than expected, but still better than Japan's and the European Union's forecast rates of growth.
Another inflation gauge pointed lower. The Dallas Fed's trimmed mean measure put the one-month annualized rate for June at 1.4%, down 1.3 percentage points from May and at its lowest level since November 2020. The 12-month rate fell to 2.2%, down 0.2 percentage point from a month earlier and at a bottom not seen since July 2021. The Dallas Fed measure excludes 24% of the lower-end price readings and 31% at the high end to calculate a midpoint. The Cleveland Fed has a 16% trimmed mean that includes price changes below the 92nd percentile and above the 8th percentile; for June, that trimmed CPI was 2.63%, on an unrounded basis, the lowest since May 2021.
Citigroup economist Andrew Hollenhorst said in a note that trimmed mean data "should also now fall closer to target-consistent rates." He added, "The fact that underlying inflation is still slowing toward target – as indicated by a broad set of indicators – is now even more relevant given Chair Warsh's suggestion that he would analyze inflationary pressure by looking across a broad range of metrics," and said, "We expect markets to price-out rate hikes in coming months on inflation data, and price-in cuts if the unemployment rate rises as we project."
What They're Calling Stability
The article said Fed officials are quick to stress that they don't focus on one month of any data point, but the trend in the trimmed mean could get more attention, particularly in light of Chairman Kevin Warsh's intention to reexamine how the central bank views inflation and what data points it employs. Warsh said, "Not one of my FOMC colleagues is under any illusion. We have begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks — or by a single month of modest price decreases."
Dallas Fed President Lorie Logan said researchers had found "that a change in the mix of price increases and decreases is causing the trimmed mean to drop too many increases right now. This effect likely makes the trimmed mean lower than the true inflation trend." Logan dissented from the Federal Open Market Committee's decision to keep its benchmark interest rate steady, preferring instead a quarter percentage point increase to address inflation that has been running above target for more than five years. "Even after accounting for productivity gains and temporary supply shocks, inflation appears to be trending toward the mid-2's, not all the way to 2 percent, and the risks are to the upside," she said in a statement Friday. Logan was joined in her dissent by Kashkari and Hammack, both of whom said inflation is uncomfortably high and the Fed should act now rather than wait.
The University of Michigan reported Friday that consumer sentiment perked up a bit in July as inflation fears abated. The one-year inflation view dipped to 4.2%, down 0.4 percentage point from May and the lowest since March, while the five-year outlook was unchanged at 3.3%.
Next week, investors await key jobs data, including the nonfarm payrolls report for July on Friday and the JOLTs job openings report for June on Tuesday. The broader market focus also includes upcoming employment and sentiment data, while the opinion piece said unemployment remains low and that in July, jobless claims were at the lowest level since Neil Armstrong walked on the moon and The Beatles released "Abbey Road." It also said salaries are forecast to grow at a healthy 3.5% on average in 2026, the same pace as last year, and that the typical worker is at least keeping up with inflation, compared with 2022 when prices rose 8% and incomes grew 5.3%.
The opinion piece said the poverty rate has dropped 16.5% since 2016, from roughly 1 in 8 Americans a decade ago to about 1 in 10 now, according to the most recent Census data available. It said the United States minted about 1,200 new millionaires every day in 2025, meaning more than 440,000 Americans saw their net worth jump into seven figures in one year. It also said the S&P 500 has gained nearly 17% since July 2025, reflecting strong profits across a variety of sectors and added wealth for the more than 60% of Americans who own stocks. The piece said almost 500,000 new businesses have been launched each month since January 2024, citing The Economist.
The opinion piece said the overall economy continues to grow at a solid pace despite uncertainty that President Trump's tariffs and the war with Iran have injected into the marketplace. It said the tariffs and the war have kept inflation higher than it should be, put a strain on family budgets, led to elevated interest rates on auto and home loans, and jacked up energy costs. It concluded that the U.S. economy is healthy and growing, but would be even stronger if the president got out of the way.