Renowned market strategist Ed Yardeni warns that if the Federal Reserve does not proactively pivot at the June meeting, it faces the risk of losing control over borrowing-cost management—meanwhile, the bond market has already moved first, and the window left for monetary authorities is narrowing.

In his latest research note, Ed Yardeni, president and chief investment strategist at Yardeni Research, said that the Fed’s current accommodative stance is “no longer appropriate” for the market environment at this moment and should be withdrawn at the June meeting. He wrote: “If the Fed fails to remove the accommodative stance, investors will reach the conclusion that the central bank is behind the inflation curve—and will demand a higher inflation risk premium.” He expects the Fed to hold interest rates steady at the June meeting and shift to a more tightening policy stance.

Bond-market pricing is already getting ahead of the curve. Traders currently expect the Fed to raise rates in March next year, with roughly a three-quarters probability priced in for a rate hike before December this year. Against this backdrop, the yield on the 30-year U.S. Treasury has climbed above 5%, nearing the highest level since 2007, and the 10-year benchmark yield rose further by 3 basis points to 4.63% during Monday’s Asian trading session.

The accommodative stance is “no longer timely”

According to Bloomberg, in his research note Ed Yardeni explicitly called on the Fed to abandon its accommodative stance at the Federal Open Market Committee meeting on June 16–17. He pointed out that if the central bank moves too slowly, investors will conclude that it is lagging behind the inflation outlook, which in turn will lead them to demand higher inflation risk premiums—ultimately pushing up long-end interest rates and causing the Fed to lose control over borrowing costs.

Yardeni also noted in another research note that if the 10-year Treasury yield continues to rise, it could top out in the range of 4.75% to 5% over the coming weeks. He believes, “At that point, it will be a good buying opportunity for bonds and stocks.”

Ed Yardeni is the creator of the term “bond vigilantes,” used to describe investors who protest government policies by selling Treasuries. He is also an advocate of the “Roaring 2020s” market theme, believing that improvements in technology and productivity will drive continued economic prosperity. His year-end target price for the S&P 500 is 8,250, the highest forecast among the strategists tracked by Bloomberg.

The rise in rates driven by inflation concerns is not unique to the United States. Yardeni pointed out that yields are moving higher in tandem in places such as Europe and Japan, weakening the impetus for overseas funds to buy U.S. Treasuries and forcing the U.S. government—amid a backdrop of high fiscal deficits and lingering inflation risks—to pay a higher price in the competition for global funds’ buyers.

Bloomberg market strategist Mark Cranfield commented: “A 5% yield on long-term bonds is not only failing to attract value buyers—it is actively encouraging bond shorts and reigniting vigilante sentiment.”

Wall Street bigwigs forming a consensus

Yardeni’s concerns are not voiced in isolation. DoubleLine Capital CEO Jeffrey Gundlach and Pimco CIO Dan Ivascyn hold broadly similar views, believing the Fed may have to postpone rate cuts, or even turn to rate hikes.

In an interview with Fox News, Gundlach said: “With the two-year Treasury yield nearly 50 basis points above the federal funds rate, rate cuts are, in my view, simply not possible.”

The market pressure is increasingly focused on the person set to become the next Fed chair, Waich. He will preside over his first Federal Open Market Committee meeting on June 16–17. At that time, investors expect interest rates to remain elevated, despite President Trump’s continued calls to lower borrowing costs.

Yardeni offered a rather counterintuitive line of logic: a Waich that is more hawkish than the market expects might actually be in the best interests of the Trump administration. In his research note, he wrote: “By taking a hawkish stance, Waich may have a chance to deliver the true outcome the White House wants—lower borrowing costs in the real economy. Mortgage rates could move lower, corporate financing conditions could improve, and Trump could tout the decline in long-end yields as an economic win.”