The Federal Reserve raised rates by 25 basis points on September 16 to a range of 3.75% to 4%, its first hike since 2023, and the bond market hasn't settled down since. The 10-year Treasury yield is sitting near 5.25% — close to its highest level since 2007 and more than 100 basis points above where it was a year ago. Former Dallas Fed President Robert Kaplan says traders are flying blind on the new Fed chair, and it's showing up in yields.
What Kaplan told CNBC
Kaplan, now a Goldman Sachs vice chairman, said on CNBC that bond traders are adding what he called a "Warsh premium" to Treasury yields because they can't yet read Fed Chair Kevin Warsh. The repricing started right after Warsh's September press conference, according to Kaplan, and one detail stands out: Warsh declined to submit his own rate projection in the Fed's updated dot plot. That dot plot shows one more rate increase this year.
"I think the market may be overestimating what the Fed actually does, but time will tell," Kaplan said. He told CNBC that markets are pricing in more tightening than the Fed projected.
The diesel problem nobody's pricing right
Kaplan pointed to a second risk premium building in Treasuries: the chance that the Iran war keeps diesel prices elevated far longer than expected. Diesel costs are already spreading into 30 or 40 items, he said. Ukrainian strikes have left roughly half of Russia's refineries offline or damaged, adding to the supply squeeze. Calmer oil and diesel prices would help yields ease, Kaplan noted. Until then, the inflation math gets messier.
Melissa Brown, global head of investment decision research at SimCorp, told TheStreet the Fed has little control over supply-side inflation. That's the uncomfortable part of this cycle — the central bank can move rates, but it can't reopen refineries.
Kaplan's call: skip October, wait for December
Despite the hot yields and the dot plot, Kaplan said he would skip an October hike and revisit in December. His view lines up with New York Fed President John Williams, whose recent comments cooled expectations for an October move. That's a notable split from what the bond market appears to be pricing. Kaplan's argument isn't that inflation is solved — it's that the Fed doesn't need to overreact before it has better data.
Why crypto should care
Higher yields typically weigh on risk assets such as Bitcoin. Add the dollar's best month since June, and the pressure compounds. Crypto has spent this year trading as a liquidity-sensitive asset, which means a 10-year yield near 5.25% isn't just a bond story — it's a valuation headwind for anything priced in risk-on terms. The Fed's next meeting in October is the near-term flashpoint. If Williams and Kaplan are right and the Fed holds, some of that Warsh premium could come out of the curve. If the Fed hikes again, the market gets exactly what it's already paid for.
Either way, Warsh's next press conference is the next real test. Traders will be watching whether he submits a projection this time — and whether diesel prices give him room to breathe.
