Warsh Hawkish Stance Makes Rate Cuts Virtually Impossible, 2-Year Yield Hits 4.15%

Markets are rapidly repricing tighter Fed policy after new Chairman Kevin Warsh signaled a regime change favoring balance-sheet reduction and Governor Hammack reinforced that rate cuts are off the table while inflation stays elevated. The shift follows strong May jobs data showing 172,000 payrolls and 4.3% unemployment, which Hammack described as roughly in balance. Investors now fully price a December hike and assign a 44% chance to September, driving the 2-year Treasury yield 9.8 basis points higher to 4.15% and pressuring equity valuations despite the S&P 500 and Nasdaq sitting at record highs.