The selling that has hammered the U.S. Treasury market for two weeks spilled into stocks on Friday, dragging the S&P 500 lower as the 30-year Treasury yield pushed above 5.1 percent, the 10-year yield approached 4.6 percent and West Texas Intermediate crude climbed back above $105 a barrel. Hours earlier, the Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters lifted its second-quarter consumer inflation projection to 6 percent, more than double the 2.7 percent the same panel forecast three months ago.
The one-two of a runaway inflation outlook and a 30-year yield at its highest level since May 2025 reshaped expectations for the Federal Reserve on Kevin Warsh's first day in the chair's office. Traders in the fed funds futures market began pricing in a rate increase, not a cut, as the central bank's next move, a reversal that puts the new chair on a collision course with his own stated preference for lower rates and with the White House that nominated him.
What the tape showed
The S&P 500 still finished on pace for a seventh straight weekly gain, but Friday's session brought profit-taking across the artificial-intelligence trade that has carried the rally. Nvidia, Broadcom, Arm Holdings, Corning, Qnity Electronics and Eaton all gave back recent gains, according to CNBC's Homestretch newsletter. Home Depot was among the week's biggest losers as renewed inflation concerns lifted mortgage rates and threatened, in the newsletter's words, to keep the housing market frozen.
The move in the long end of the curve was the louder signal. The 30-year yield's break above 5.1 percent took it to its highest level in roughly a year, and the 10-year's climb toward 4.6 percent came in a week that brought a 3.8 percent April consumer-price reading, the highest in nearly three years, and a 6 percent producer-price annual rate, the steepest since December 2022.
The 6 percent number
The Philadelphia Fed's quarterly panel of professional forecasters now expects headline CPI to run at 6 percent in the second quarter, with core PCE — the Fed's preferred gauge — at 3.4 percent, up from 2.7 percent in the February survey. The panel pinned the upward revision on the U.S. and Israeli strikes on Iran that have kept crude above $100 a barrel for most of the spring.
The same panel cut its 2026 GDP forecast to 2.2 percent, down 0.3 percentage point from the February estimate, and lifted its unemployment-rate projection for the year to 4.5 percent. Forecasters do not see CPI back near the Fed's 2 percent goal at any point in the next decade; the 10-year projected annual average sits at 2.4 percent, which the survey notes is equivalent to 2.22 percent on the PCE gauge.
On the futures strip
Fed funds futures, priced for further cuts for most of the year, flipped on the data. The CME Group's FedWatch tool late Friday assigned a roughly 51 percent probability to a rate increase at the Fed's December meeting, about 60 percent by January and better than 71 percent by March. It is the first time in the current cycle the market has treated a hike as the more likely next move.
Three members of the Federal Open Market Committee dissented at the most recent meeting, objecting to language hinting that the next move would be a cut. Outgoing Governor Stephen Miran, who is leaving the board this month after the shortest tenure of any Fed governor in 71 years, dissented at every one of the six meetings he attended in favor of larger cuts. In a CNBC interview Friday, Miran said the recent data had moved him only modestly. Recent prints had made him "a little bit more concerned about inflation," he said, while still calling for rates to be three-quarters of a point lower than the Fed's current setting.
What Warsh inherits
Warsh, confirmed Wednesday by a Senate vote of 54-45, the narrowest margin ever recorded for the job, has said publicly that he believes the Fed can lower rates in the current environment and has called the Trump administration's deregulation push "the most significant since President Ronald Reagan's." At his April 21 confirmation hearing, he told senators he wants the committee to focus on trend inflation rather than individual price shocks.
"I'm most interested in what's the underlying inflation rate, not what's the one time change in prices because of a change in geopolitics or change in beef, but what's the underlying generalized change in prices in the economy?" Warsh said.
The bond market spent Friday betting he will not get the cuts he wants. With three dissenters already on record worrying about inflation, and with futures now leaning toward a hike, the new chair's first task is closer to defending the Fed's inflation-fighting credibility than to easing policy.
The other side
Friday's reporting came from center-leaning wire and business outlets. Administration officials, who have publicly pressed for sharply lower rates, had not publicly responded to the Survey of Professional Forecasters or to the futures-market repricing by press time.
Before Warsh chairs his first Federal Open Market Committee meeting, the May consumer-price reading is due from the Labor Department, and Nvidia, the company whose results have set the tone for the AI trade carrying the equity rally, reports earnings after the closing bell on Wednesday.