Fed Yield Conundrum Simulator | Warsh Macro Policy Model

Policy Levers

Fed Funds Target Rate 4.50%

FOMC short-term policy benchmark rate

5Y Forward Inflation 2.80%

Market-implied medium term inflation expectations

QT Monthly Pace ($B) $60B/mo

Balance sheet runoff draining bank reserves

Treasury Term Premium Shock +0.75%

Compensation demanded for fiscal deficit & duration risk

Warsh's Conundrum Hypothesis: When long yields rise despite Fed easing due to fiscal debt supply, traditional monetary transmission breaks down.

2-Year Treasury Yield

4.42%

Policy sensitivity proxy

10-Year Treasury Yield

4.85%

+43 bps spread

Yield Curve Regime

Bear Steepening

Long rates rising faster than short

Wall St Banking Stress

42.5 Cautious

HTM bond losses & liquidity index

Kevin Warsh Conundrum Assessment

Bear Steepener Dilemma Active

The 10-year yield is trading at 4.85%, outpacing the 2-year yield (4.42%). Long-term borrowing rates are surging due to heavy Treasury supply and elevated term premium (+0.75%), effectively neutralizing Fed rate cut expectations and driving mortgage and corporate credit costs higher.

Transmission Channel: If the Fed cuts short rates while term premium stays unanchored, the curve steepens aggressively, hurting regional bank balance sheets holding long-duration securities.

Wall Street Financial Telemetry

2Y/10Y Spread: +43 bps (Steepening)
30Y Long Bond: 5.25% (Mortgage rate pressure)
Reserve Drain: QT at $60B/mo draining reverse repos
FOMC Dilemma: Rate cuts risk fueling long-end debt revolt

State ID: WARSH-SIM-LIVE

Assigned yield curve arithmetic

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Read the explanation

Source two-year yield adds policy rate four point five times point eight two, inflation two point eight times point two five, and sixty times point zero zero zero five, giving four point four two. Its ten-year equation gives four point eight five; difference point four three percentage points is forty-three basis points. Bars compare yields at one hundred twenty pixels per percentage point. These are assigned formulas, not current bond quotes. Same entered sixty-billion monthly tightening pace multiplies point zero zero zero five in the two-year equation, giving point zero three percentage points, and point zero one five in ten-year, giving point nine. Bars compare contributions at five hundred pixels per percentage point. The thirtyfold sensitivity difference is programmed and does not establish causal market transmission. Source stress score combines policy contribution thirteen point five, ten-year yield contribution nineteen point four, term premium seven point five and tightening two point one to forty-two point five. Bars compare the first two at twenty-five pixels per index point. Cautious sentiment is an assigned threshold label, not observed banking stress or investment advice. Complete original raw JSON/reset/native resize/first-footer proof preserves the model.