Adeeni, the proposer of the "bond vigilante", says that the Federal Reserve should eliminate its loose monetary policy in June, otherwise it will lose control over interest rates.

According to Yardeni Research, as investors' concerns over inflation escalate, the Federal Reserve needs to keep up with the bond market, or else risk losing control over borrowing costs. Ed Yardeni, the president and chief investment strategist of the firm, stated that given the current market environment is "no longer" suitable for loose monetary policies, the Fed should abandon its dovish stance at the June meeting. Yardeni wrote in a report: "If the Fed fails to abandon its dovish stance, investors will believe that the central bank is falling behind the curve on inflation and will demand higher inflation risk premiums. We expect the Fed to maintain interest rates at the June meeting and turn towards a tightening policy stance." This hawkish view not only resonated among macroeconomic scholars, but also received strong support from Jeffrey Gundlach, CEO of DoubleLine Capital LP, known as the "new bond king." Gundlach explicitly stated that investors will absolutely not see a rate cut at the next Fed policy meeting, despite the market's previous expectation for two rate cuts this year. This expectation has now completely turned into wishful thinking due to the lack of supporting inflation data. It is understood that the swap market is currently predicting a 25-basis-point rate hike by the Fed by March; prior to the outbreak of the Iran conflict, the market was expecting over two 25-basis-point rate cuts by the end of the year. At the time of Yardeni's remarks, the 30-year US Treasury bond yield had risen to over 5%, close to the highest level since 2007, while the yield on the more policy-sensitive two-year Treasury bonds was near a 15-month high. Escalating inflation concerns have also pushed global bond yields higher, sparing no country from Europe to Japan. Yardeni claims that the rise in overseas rates is weakening the long-standing demand sources for US Treasury bonds, forcing the US government to work harder to attract buyers in the face of huge fiscal deficits and ongoing inflation concerns. Bloomberg strategist Mark Cranfield stated: "The 5% long-term bond yield not only failed to attract value buyers but also fueled the bearish sentiment in bonds and reignited the bond vigilante mindset." Additionally, top financial institutions including Goldman Sachs and Bank of America have recently revised their interest rate forecasting models. Goldman Sachs, due to stronger recent inflation and job data, has slightly pushed back its prediction of the first Fed rate cut by a quarter to the end of 2026. Meanwhile, Bank of America warned in a risk warning report that if geopolitical conflicts continue to push up energy prices and core inflation remains high, the Fed may be forced to delay its first rate cut until the second half of 2027 in extreme circumstances. Within the Fed, the division in policy and the tilt of the balance have become more apparent. In a previous policy meeting, three voting members including Harker, Kashkari, and Rosengren opposed retaining a rate cut bias, and Boston Fed President Collins later joined the hawkish camp calling for the removal of rate cut rhetoric. In this backdrop, the incoming Fed Chair Kevin Warsh faces greater pressure. Although US President Donald Trump has called for lowering borrowing costs, investors expect US rates to remain high for a longer period. Yardeni stated that the current economic backdrop no longer supports the rationale for a dovish stance, let alone rate cuts. Instead, he believes that if Warsh is more hawkish than the market expects, it could actually benefit Trump by helping to curb long-term bond yields. He wrote: "By taking a hawkish stance, Warsh may have the opportunity to fulfill the White House's wish: reducing borrowing costs in the real economy. Mortgage rates may decrease, corporate financing may be eased, and Trump can see the decline in long-term yields as an economic victory."