Markets, particularly bonds, did not like what Federal Reserve Chairman Kevin Warsh had to say, according to Ed Yardeni. The Fed on Wednesday kept its overnight benchmark rate unchanged, as was widely expected. But the fact that rates were kept steady while Warsh acknowledged there's "no magic wand" to lower inflation did not sit well with investors and traders. Treasury yields on the long end of the curve soared as Warsh held his post-meeting news conference. The 30-year bond yield on Wednesday topped 5.2% to reach levels not seen since 2007, when George W. Bush was president and the Global Financial Crisis hadn't yet happened. Stocks tumbled, with the Dow Jones Industrial Average posting its worst day since April 2025. .DJI 5D mountain Dow 5-day chart "Warsh talked hawkishly [Wednesday]. But he did not deliver a [Fed] rate hike. So bond yields rose. Arguably, Warsh failed his first credibility test," wrote Yardeni, president of Yardeni Research and coiner of the term "Bond Vigilantes" — investors who sell Treasurys, send yields higher and enforce their views on fiscal or monetary policy . "Once again, the Bond Vigilantes are pushing bond yields higher. In effect, they are saying that if the Fed won't be vigilant about inflation, then they [bondholders] will have to maintain law and order in the economy," said Yardeni. "Under the circumstances, we conclude that the Fed has to raise short-term rates to lower long-term rates. Talking hawkish but not acting so reduces the Fed's credibility," he added. Inflation has been persistently elevated lately as the U.S.-Iran war drags on, pushing oil prices higher. In June, the personal consumption expenditures — the Fed's preferred inflation measure — rose at an annual rate of 3.7% , well above the central bank's 2% target. Now, traders are pricing in a rate hike at the next Fed meeting. The CME Group's FedWatch tool, based on where fed funds futures are trading, points to a 60% chance of a quarter-point increase in September.