After Federal Reserve Chairman Kevin Walsh delivered a clear hawkish signal at his first FOMC meeting, market concerns over the long-term U.S. interest rate outlook have intensified. The latest Markets Pulse survey shows that most respondents expect the 30-year U.S. Treasury yield to break above 5% again by the end of the year, reflecting lingering investor doubts about inflation persistence and the Fed’s policy path.
The survey covered 101 market participants, of whom 57% expect the 30-year Treasury yield to reach or exceed 5% by year-end. Previously, driven by a spike in oil prices triggered by the U.S.-Iran conflict, the yield briefly broke above 5% last month, hitting a nearly 20-year high, and is currently hovering around 4.9%. Historically, the last time the 30-year Treasury yield exceeded 5% was in 2023, when the Fed was aggressively raising rates to combat high inflation; the yield also briefly touched the 5% level after the Trump administration introduced a new round of tariff policies last year.
The Fed kept rates unchanged this week, but Walsh reiterated at the post-meeting press conference that the central bank will continue to prioritize restoring price stability, and explicitly ruled out revisiting the 2% long-term inflation target. The latest rate projections show that among 18 policy officials, 9 expect at least one rate hike this year, with 6 expecting at least two hikes, further reinforcing expectations of policy tightening.
Analysts believe that the Fed’s hawkish stance has to some extent alleviated bond market concerns about “tolerating higher inflation.” Dhiraj Narula, U.S. rates strategist at HSBC Securities, pointed out that Walsh’s clear defense of the 2% inflation target helps prevent long-term inflation expectations from becoming unanchored. However, the market remains concerned that earlier energy price increases are gradually transmitting to the real economy. As companies pass costs on to consumers, inflationary pressures may remain elevated in the near term, and long-term Treasury yields still face upward pressure.
Against the backdrop of rising rate expectations, the dollar has become the market’s most favored beneficiary asset. The survey shows that over 40% of respondents believe the dollar will be the biggest winner from rising rate expectations. The dollar continued to advance on Thursday, posting its largest two-day gain since late March. Jane Foley, head of FX strategy at Rabobank, said the Fed’s hawkish signals have fully offset the negative impact of a U.S.-Iran peace agreement on the dollar. As long as U.S. economic data remain resilient, the dollar still has room to rise. Brendan Fagan, a Bloomberg strategist, also noted that “higher rates for longer” combined with upward revisions to inflation expectations constitute a favorable environment for the dollar.
Meanwhile, the market’s view on the stock-bond relationship is also shifting. The survey shows that investors expect the positive correlation between the S&P 500 and the 2-year Treasury yield to re-emerge, but the market remains divided on whether stocks will rise or bond yields will fall in the future. Currently, the correlation between the two is near its most negative level of the past decade, meaning their recent movements have been largely opposite.
Kay Haig, chief investment officer at Goldman Sachs Asset Management, pointed out that Walsh sent an “unambiguous hawkish signal,” and traders subsequently ramped up bets on an earlier rate hike. Data shows that investors now see over an 80% probability of a rate hike by the FOMC in September, and have fully priced in at least one rate hike by October. Haig said that volatility in the 2-year Treasury market will rise significantly in the future, driven both by the market’s focus on inflation expectations and by the stabilization of the long end and the flattening of the yield curve. On Wednesday, the 2-year Treasury yield jumped as much as 13 basis points after the FOMC decision, marking its largest single-day gain since April 2025, while the 30-year Treasury yield hit a two-month low on Thursday.
