TreasuryDirect is launching a controversial login system

Posted on August 17, 2026 by Tipswatch

And it will be mandatory after October 28

By David Enna, Tipswatch.com

Over the weekend, TreasuryDirect began sending out emails alerting investors it is changing its login system to ID.me, a government-verified but somewhat controversial identity provider.

The new system will go live September 13 and will become mandatory October 28. This gives users 2 1/2 months to get set up on ID.me, a process that can be tedious, difficult and honestly, a little scary.

Some Tipswatch readers and Boglehead forum users are incensed by this change and some are threatening to withdraw all investments from TreasuryDirect, a process that would launch a time-consuming process for traditional Treasury investments and a nasty potential tax hit for redeemed savings bonds. Here are some of the comments, for and against:

Biometric data/facial recognition/fingerprint ID, whatever, stored in corporate or government computers, gives me the creeps. An invasion of privacy, and my wife and I have studiously avoided it. … If this is the going to be the only way to do online business with TreasuryDirect, we’re going to have to reconsider whether to remain I Bond customers.

I think this mandate may cause many savings bond holders to exit savings bonds. It could be TD’s intent to get rid of savings bonds.

To me, this will be a simpler login process that is more consistent with other Agencies. Most Agencies are moving to this.

I use login.gov for Social Security. I started setting up an ID.me for the IRS but I stopped when I realized what the process involved.

I’ve had it. I will be cashing out my I bonds.

I’m actually looking forward to the change because, currently, TD (Treasury Direct) has a less convenient login system than virtually every other website I use. TD forces you to check your email for a one-time code that needs to be copy-pasted every time you want to log in, which no other website does.

If you ever logged into the Social Security web site, IRS.GOV, or EFTPS then you would likely already have an ID.ME account. It’s not a big deal.

I too am livid about this. Neither my spouse nor I were ever able to get ID.me to work.

Why the controversy?

ID.me is a private corporation focusing on identify verification but has a sideline in offering shopping deals. The company was founded in 2010 as TroopSwap, a daily deal website with a focus on the American military. In 2013, the company rebranded as ID.me with the goal of providing a secure identity verification network.

The U.S. government also uses its own system, login.gov, for verification. But it has been expanding use of ID.me for sites like the Social Security Administration, Veterans Administration and the IRS. From the ID.me Wikipedia page:

As part of its identification system, the company collects a wide range of personal information, including photographs and identification documents. The company verifies information by sending it to a number of “government agencies, telecommunications networks, financial institutions” and other companies which the company trusts and considers reliable.

The Wiki reference to “companies which the company trusts and considers reliable,” could be outdated. I could not find further information.

The IRS converted to ID.me for logins in 2022. This is from the ID.me help page:

Taxpayers and tax professionals will be able to prove their identity with ID.me by uploading government documents, taking a video selfie, and filling out personal information. Once complete, taxpayers can access the IRS application for which they verified.

Uploading government documents? Photos of your passport or driver’s license? Video selfie? Personal information? All going to a private company that possibly shares information with companies “which the company trusts and considers reliable”?

That’s the core point of the criticism: ID.me is a private company collecting your personal data, including your image. And it has a shopping service on the side?

The ACLU has been campaigning against use of ID.me on essential government sites, saying, “Forcing people to use private ID-verification to access tax accounts or other government services raises serious privacy and equity issues.”

The ACLU in 2022 published “Three Key Problems with the Government’s Use of a Flawed Facial Recognition Service.” It includes:

Even if you do have reliable internet access, that’s no guarantee that the ID.me system will work. ID.me appears to be nearly universally reviled by users for its poor service and difficult verification process. …

ID.me collects a rich stew of highly sensitive personal information about millions of Americans, including biometric data (face and voice prints), government documents, and things like your social security number, military service record, and data from “telecommunications networks, credit card bureaus, [and] financial institutions.”

Overreaction?

TreasuryDirect gives us the positive spin:

The new login process, ID.me, is a more standardized, secure way of logging in. It uses a government-verified method to verify your identity, which protects your sensitive personal and financial information from identity theft and unauthorized access. By using ID.me, you gain a trusted, convenient, and highly secure digital credential that allows you to safely access multiple government services without needing separate accounts.

I have accounts with login.gov, which can be used on the Medicare site, and ID.me, which is needed to make and track estimated tax payments to the IRS. As I recall, I spent weeks fussing over creation of the ID.me account, uploading personal information and having the process fail. The “video selfie” seemed to be a particular problem. My wife had similar problems.

At the time, I wasn’t paying much attention to the fact that ID.me is a private company with military connections and expanding government contracts.

I will warn everyone: If you want to continue to use TreasuryDirect and don’t have an ID.me account, begin setting that up quickly. It might work easily for you; it might not. October 28 is 2 1/2 months away.

Am I thinking of withdrawing all my money from TreasuryDirect because of this changeover? No. At this point, I can use ID.me successfully to log into the IRS site, so I will probably be fine — with the process. Not so fine with a private contractor having access to all this information, including my TreasuryDirect login.

Unless you are prepared for a withering tax hit, don’t suddenly redeem all your I Bonds from TreasuryDirect. All interest will be taxable in 2026. And if you are holding other longer-term Treasurys there, moving those investments is going to take months.

Plus: If you redeem I Bonds, you will need to log into TreasuryDirect in late January to retrieve your 1099s. You will need an ID.me account to get those 1099s, because TreasuryDirect will not be mailing them to you.

What comes next?

TreasuryDirect says this:

  • Ensure that you have two government-issued forms of identity ready when signing up for ID.me. This can be your SSN and a valid government-issued photo ID, such as driver’s license, state ID, passport or passport card. You may also be asked for photo verification using your cell phone’s camera. Note that if you already have an ID.me account, you may be asked to complete additional identity verification to meet security requirements before you can use it to access TreasuryDirect.
  • Set up your ID.me digital “Wallet” once you have an ID.me account. Your wallet securely stores your verified identity information and will make logging in quicker going forward.

Additional information, including required actions and key dates, will be provided before the transition begins.

I am a troubled by this statement: “Note that if you already have an ID.me account, you may be asked to complete additional identity verification to meet security requirements before you can use it to access TreasuryDirect.”

Really? Additional identity verification?

Also, I wonder what will happen at households with two accounts (husband/wife, for example) and potentially additional trust accounts. Will all these have to be verified separately?

Under TreasuryDirect’s current system, I can log into both of our accounts since the verification code is sent to my email address. That might not be possible with ID.me stepping into the middle of the login process. And it also means your partner may need to set up an ID.me account in the next two months.

I see many, many problems coming for TreasuryDirect users. Let’s face it: Tipswatch readers and Bogleheads are very tuned-in investors. A huge number of TreasuryDirect users are likely to go the site on or after October 28 to find they are locked out until they get ID.me set up.

The ID.me change could be the first of a series of long-rumored “upgrades” to TreasuryDirect. Get ready for a rough ride.

What do you think? Will you truly close out your account at TreasuryDirect? Have you successfully created an ID.me account? Or have you failed? Tell us in the comments section below.

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Donate? This site is free and I hope to keep it that way. Some readers have suggested having a way to contribute. I welcome donations, any amount. And FYI, ads on this site pay for about one visit to Costco.

PayPal link / Venmo link

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Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in I Bond, Investing in TIPS, Savings Bond, Social Security, TreasuryDirect | Tagged , , , , | 83 Comments

Will this week’s stellar 30-year TIPS auction attract investors?

Posted on August 16, 2026 by Tipswatch

30 years is a difficult maturity for a small-scale investor.

AI image for “investor shooting for the stars.” Perchance.org

By David Enna, Tipswatch.com

The Treasury on Thursday will auction $8 billion of a reopened 30-year Treasury Inflation-Protected Security, CUSIP 912810US5. This will be a relatively historic event because the auction is very likely to generate the highest real yield for this term at auction since October 2001, nearly 25 years ago.

Of course, the Treasury stopped issuing the 30-year TIPS right after that 2001 auction, which generated a real yield to maturity of 3.465%. I guess long-term TIPS were getting too expensive for the Treasury? Issuance resumed in February 2010, nearly nine years later.

CUSIP 912810US5 had its originating auction on Feb. 19, 2026, when it generated a real yield to maturity of 2.473%. Its coupon rate was set at 2.375%. Thursday’s auction sets the term at 29 years, 6 months.

The auction looks likely to get a substantially higher real yield. CUSIP 912810US5 trades on the secondary market, where it closed Friday with a real yield of 3.02%. That is significant. If it carries through to Thursday’s auction, it would crash through the previous post-2010 high of 2.650%, set at last year’s August auction.

Definition: The “real yield to maturity” of a TIPS is its yield above future U.S. inflation, over the term of the TIPS. So a real yield of 3.02% means an investment in this TIPS would provide a return that exceeds official U.S. inflation by 3.02% for 29 years, 6 months.

For years, TIPS investors have dreamed about getting a 3% real yield long term. Now that day has arrived. Here is the trend in the 30-year real yield over the last 16 years:

Click on image for larger version.

Here’s another chart, comparing historic 30-year nominal Treasury bond yields with the current 3% real yield of a 30-year TIPS. Note how frequently the nominal yield dipped below the current real yield of 3%. Again, this is significant. (Although I don’t foresee nominal 30-year yields dipping below 3% anytime soon.)

Click on image for larger version.

All of this reinforces the idea that Thursday’s 30-year reopening TIPS auction has great appeal. But …

The negatives

A 30-year bond of any type is going to be highly volatile. For example, CUSIP 912810US5 was issued in February with a coupon rate of 2.375%. Today, six months, later, it is trading with a price of about 87.41, meaning it has lost more than 12% of its value in six months.

Another example: A disastrous 30-year TIPS issued in February 2021 got a real yield of -0.04% and its coupon rate was set at 0.125%. Today, that TIPS along with its accrued inflation is trading with a price of about 49.65, meaning it has lost half its value if sold today.

If you are a TIPS trader, that volatility can work for you, or against you. Jumping into a 30-year bond is a gamble. If it ends up that 3% is the real-yield peak for this cycle, a trader could end up getting a nice profit. But we can’t predict the future. The current trend in yields is higher.

TIPS are best purchased, I believe, with a strong intention to hold to maturity. Also, for such a long maturity, a tax-deferred account is the best location for the investment, for most investors.

Pricing

As of Friday’s close, CUSIP 912810US5 was trading with a price of 87.41 and it will carry an inflation index of 1.03055 on the settlement date of August 31. With that information, we can estimate the cost of a $10,000 par value purchase:

  • Par value: $10,000.
  • Principal purchased on settlement date: $10,000 x 1.03055 = $10,305.50.
  • Cost of investment: $10,305.50 x 0.8741 = $9,008.04.
  • Plus accrued interest of about $10.64.

In summary, if Friday’s market conditions continue, an investor would pay $9,008.04 for $10,305.50 of principal on the settlement date. From then on, the investor would earn accruals matching future inflation, plus an annual coupon rate of 2.375% on adjusted principal for 29 years, 6 months. The accrued interest would be returned at the February 2027 coupon payment.

This is an estimate. Market conditions will change by Thursday.

Inflation breakeven rate

With the 30-year nominal Treasury closing Friday at 5.26%, this TIPS currently has an inflation breakeven rate of 2.24%, somewhat high historically but perfectly reasonable considering long-term inflationary trends. Over the last 30 years, ending in July, inflation has averaged 2.5%.

Here is the trend in the 30-year inflation breakeven rate over the last 16 years, showing the remarkably stable trend recently hovering around 2.2%:

Click on image for larger version.

Thoughts

CUSIP 912810US5 is a fascinating investment, and attractive by historical standards. But will we continue to see rising longer-term nominal and real yields? It’s possible — and that’s the risk for such a potentially volatile investment.

On the other hand, for a buy-and-hold investor looking to build a TIPS ladder out to 2056, getting close to a 3% real yield is extremely attractive.

CUSIP 912810US5 trades on the secondary market and can be purchased at any time in a brokerage account. There is no need to focus on Thursday’s auction if you see a real yield you like on the secondary market. I suspect, however, that 30-year TIPS are fairly lightly traded in small lots. Bid-ask spreads could be a problem.

The advantage of buying at auction, especially through TreasuryDirect, is that even small-lot purchases will get the auction’s high yield. The advantage of the secondary market is that you can see exactly the price and real yield you will be receiving.

I won’t be a buyer at this auction, since I will be “long gone” at maturity in 2056.

This TIPS auction closes Thursday at 1 p.m. ET. Non-competitive bids at TreasuryDirect must be placed by noon Thursday. If you are putting an order in through a brokerage, make sure to place your order Wednesday or very early Thursday, because brokers cut off auction orders before the noon deadline.

Note: On Thursday I will be driving into Tennessee to attend a memorial service. I expect I will be late posting the auction results, possibly very late. You can find the auction result announcement on this page after the 1 p.m. close.

In the meantime, here is a history of auction results for this term over the last 5 years:

• Now is an ideal time to build a TIPS ladder

• Confused by TIPS? Read my Q&A on TIPS

• TIPS in depth: Understand the language

• TIPS on the secondary market: Things to consider

• TIPS investor: Don’t over-think the threat of deflation

• Upcoming schedule of TIPS auctions

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Donate? This site is free and I hope to keep it that way. Some readers have suggested having a way to contribute. I welcome donations, any amount. And FYI, ads on this site pay for about one visit to Costco.

PayPal link / Venmo link

—————————

Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Inflation, Investing in TIPS, Retirement, TreasuryDirect | Tagged , , | 26 Comments

‘No surprises’ July inflation report gives the Fed a break

Posted on August 12, 2026 by Tipswatch

Is inflation really slowing? And what does this mean for I Bonds, TIPS and the Social Security COLA?

By David Enna, Tipswatch.com

The July inflation report provides evidence that U.S. inflation is gradually slowing, which should be good news for financial markets and the Federal Reserve.

The Consumer Price Index for All Urban Consumers increased 0.1% on a seasonally adjusted basis in July after falling 0.4% in June, the Bureau of Labor Statistics reported. Over the last 12 months, the all-items index increased 3.4%, down from 3.5% in June.

Core inflation, which removes food and energy, ran at 0.2% for the month and 2.5% for the year, down from 2.6% from June. All of these numbers matched economist expectations.

While it might appear to most drivers that gasoline prices increased in July as the war in Iran escalated, the BLS reported that gas prices fell 2.9% for the month, after falling 9.5% in June. I’d expect this reflects averaging over the month, so the August report should show an increase.

Gas prices have increased 24.7% over the last year. Here are other items from the report:

  • Food at home costs decreased 0.1% for the month are up 2.7% for the year.
  • Egg prices fell 0.5% in July and are down 25.7% for the year.
  • Lettuce prices fell 16.4% for the month, thanks to the cyclospora outbreak.
  • Shelter costs increased 0.1% for month, which the BLS said accounted for about two-thirds of the all-items total.
  • The overall energy index fell 1.5% for the month.
  • Apparel prices increased 0.1% for the month and 3.9% for the year.
  • Costs of medical care services increased 0.6% for the month and are up 2.7% for the year.
  • Airline fares increased 2.2% for the month and are up 25.5% for the year.
  • Prices for new vehicles rose 0.1% for the month and 0.5% for the year.
  • Costs of used vehicles increased 0.4% for the month, but are down 1.9% for the year.

Overall, like in June, this is a tame inflation report. While the annual rates of increase remain too high, U.S. inflation appears to be trending lower. The big question: Can this continue through a summer of potential supply shocks from the Mideast? Here is the 12-month trend in all-items and core inflation:

What this means for TIPS and I Bonds

Investors in Treasury Inflation-Protected Securities and Series I Savings Bonds are also interested in non-seasonally adjusted inflation, which is used to adjust principal balances for TIPS and set future interest rates for I Bonds. For July, the BLS set the inflation index at 333.918, a decrease of 0.01% from June.

For TIPS. The July inflation report means that principal balances for TIPS will decline 0.01% in September after falling 0.35% in August. For the 12 months ending in September, principal balances will have increased 3.4%. Here are the new September inflation indexes for all TIPS.

For I Bonds. July marks the fourth month in a six-month string that will determine the I Bond’s new variable rate, to be reset November 1. So far, with two months remaining, inflation has increased 1.12%, which translates to a variable rate of 2.24%. Two months remain. I would guess we will end up with a variable rate of about 3%, down from the current 3.34%. Here are the data so far:

View historical data on my Inflation and I Bonds page.

Social Security COLA

The Social Security cost-of-living adjustment is based on an unusual inflation index – CPI-W – and is determined by averaging the indexes for July, August, and September and comparing that number to the same average for the year before. For July, the BLS set the CPI-W index at 327.104, essentially no higher than the 327.075 recorded for June.

My projection for the 2027 COLA was 3.6%, lower than the number estimated by most other forecasters. We all might be too high, but 3.6% remains possible. Here are the data:

What this means for future interest rates

There seems to be growing support among Federal Reserve hawks for preemptive interest rate increases in coming months. I think the mild July inflation report should slow things down. It’s time to wait and watch: Is inflation truly declining? Is the U.S. labor market softening?

So I would think the Fed has a chance to stay on hold through early fall, at least.

In its morning report, Bloomberg called July inflation “subdued,” and noted:

“The big surprise with a report that had no surprises (all of the data came perfectly in line with the estimates) is that a situation where inflation isn’t reaccelerating, coupled with the most recent, weak jobs report gives the Fed more time to wait,” Chris Zaccarelli, the chief investment officer at Northlight Asset Management, said in a note. …

Also this, from Bloomberg economists Anna Wong and Troy Durie:

“July’s CPI report was modest enough to lower chances of a September rate hike, but not low enough to write it off completely. With core CPI matching its five-year low from February, and July payrolls declining, it’s hard to make an urgent case to hike.”

I would guess we will end up seeing at least a minor acceleration in inflation for August and September. But so far, the trend looks relatively mild. Core inflation at 2.5% remains too high, but it is starting to look “normal” in very un-normal times.

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Donate? This site is free and I hope to keep it that way. Some readers have suggested having a way to contribute. I welcome donations, any amount. And FYI, ads on this site pay for about one visit to Costco.

PayPal link / Venmo link

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Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Federal Reserve, I Bond, Inflation, Investing in TIPS, Savings Bond | Tagged , , | 32 Comments

The I Bond’s fixed rate is going higher. But how much?

Posted on August 9, 2026 by Tipswatch

A new fixed rate of 1.30% looks like a real possibility.

By David Enna, Tipswatch.com

We’ve seen a fascinating explosion in real yields in 2026 as the war with Iran, inflationary pressures and soaring federal deficits are straining the U.S. Treasury market.

This move higher is significant for investors in Series I Savings Bonds, a Treasury investment with returns pegged to U.S. inflation through a combination of fixed and variable rates:

  • The I Bond’s fixed rate will never change. Purchases through October 2026 have a fixed rate of 0.90%, which means the return will exceed official U.S. inflation by 0.9% until the I Bond is redeemed or matures in 30 years. A new fixed rate will be set Nov. 1, 2026.
  • The inflation-adjusted rate (often called the I Bond’s variable rate) changes each six months to reflect the running rate of inflation. That rate is currently 3.34%, annualized, for six months. It will also adjust on Nov. 1, 2026, rolling into effect for all I Bonds, no matter when they were purchased.
  • The I Bond’s current composite rate is 4.26%, annualized, for a full six months for any bond purchased from May to October 2026.

For I Bond investors, the fixed rate is the most important factor, especially for investments likely to be held for many years. Once purchased, an I Bond holds that fixed rate forever, while the variable rate will change every six months.

The fixed rate math

How is the fixed rate set? There is no announced formula and in theory this decision can be made at the discretion of the Treasury Secretary. However, over the last decade the fixed rate could be accurately forecast using this formula: Apply a ratio of 0.65 to the six-month average real yield of the 5-year TIPS. Here are results of that ratio since 2017:

On Jan. 1, 2026, the 5-year TIPS was yielding 1.46%, but that rate began steadily heading lower, right up to the day before the Iran war began on Feb. 28, 2026, when it closed at 1.11%. Since the launch of war, the 5-year real yield has increased 102 basis points, to 2.13%.

Click on image for larger version.

So the rate picture has dramatically changed since the I Bond’s May 1 reset. Because of these elevated 5-year real yields, the fixed rate is almost certainly going to increase above the current 0.90%. Let’s look at a projection, based on 5-year real yields from May 1 to Aug. 8, 2026:

We are just a bit more than halfway through the six-month period from May 1 to Oct. 31. So far, the average 5-year real yield has increased to about 1.84%, which would translate to a new fixed rate of 1.20%. And that projection looks solid if rates continue at elevated levels.

Just a reminder: The Treasury sets the I Bond’s fixed rate to the tenth decimal point, which means that any six-month ratio result of 1.151% or higher will be rounded up to 1.20%, and any ratio result of 1.251% or higher will be rounded to 1.30%. At this point, the current 0.65-ratio of 1.1991% is solidly above the 1.20% trigger.

The current 5-year real yield is 2.13%, as of Friday’s market close.

There are 57 market days remaining before the November 1 reset. In the two calculations above, I projected a rate of 1.20% if the average 5-year real yield falls to 2.00%. But if it continues around 2.10%, the fixed rate will rise to 1.30%.

Conclusion. With 2 1/2 months to go, we are right on the edge of the 1.30% fixed rate. The 1.20% fixed rate looks locked in as long as 5-year real yields remain anywhere near the current average of 1.84%, and the 1.30% rate is highly likely if rates continue at 2.10% or higher.

What about the variable rate?

Because of the recent surge in inflation, I had been expecting the I Bond’s variable rate to also increase from the current 3.34% at the November reset. This is not at all certain, however. Non-seasonally adjusted inflation fell 0.35% in June, a big surprise. The July inflation report, to be released Wednesday, could also be rather tame, with all-items projections hovering around 0.1%.

We will get a lot better idea after that July inflation report is released. I will be posting an analysis Wednesday morning.

Is there an investing strategy?

Yes. If you haven’t yet purchased I Bonds up to the $10,000 per person per year limit, hold off on any investment. The November fixed-rate reset is going to be an improvement over the current 0.90%.

If you are like me and already purchased up to the limit, there will be opportunities to use the still-existing gift-box option after the November reset, for people with a trusted partner. Plus, the new rate will be available to everyone from January to April 2027.

I will be writing about this topic often as we get closer to the November reset.

Qualifications

The projection presented in this article is based on 10 years of Treasury history in setting the I Bond’s fixed rate. But the Treasury could change course at any time. So far, in both of President Trump’s terms, the rate formula has remained accurate.

Keep in mind that the Treasury actually saves money by lending to I Bond investors at a real yield of 0.90% or 1.30% as opposed to the current 5-year real yield of 2.13% or 30-year real yield of 2.96%. Plus, savings bonds account for a minuscule portion of Treasury debt.

• Confused by I Bonds? Read my Q&A on I Bonds

• Let’s ‘try’ to clarify how an I Bond’s interest is calculated

• Inflation and I Bonds: Track the variable rate changes

• I Bonds: Here’s a simple way to track current value

• I Bond Manifesto: How this investment can work as an emergency fund

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Donate? This site is free and I hope to keep it that way. Some readers have suggested having a way to contribute. I welcome donations, any amount. And FYI, ads on this site pay for about one visit to Costco.

PayPal link / Venmo link

—————————

Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in I Bond, Inflation, Investing in TIPS, Savings Bond, TreasuryDirect | Tagged , , | 53 Comments

Federal Reserve is losing credibility, at the worst possible time

Posted on July 30, 2026 by Tipswatch

By David Enna, Tipswatch.com

The new Federal Reserve chairman, Kevin Warsh, stood in front of reporters Wednesday afternoon and said:

For some households, businesses, and market professionals five years of high inflation have left a mistaken impression that’s hard to shake, that the Fed’s implicit inflation target was somehow above 2 percent. Let me reiterate, there is no soft inflation target. There is no soft implicit target, not on this committee’s watch. There’s only a target, and it’s 2 percent.

Warsh

That seems pretty straightforward, ironically from the man who said as recently as June 17, “I tend to focus on the left of the decimal point. Well, the two is the left of the decimal point.” In other words, a month ago he wasn’t too concerned about the number to the right of the decimal point.

As was expected, the Federal Reserve’s Open Market Committee held short-term interest rates in the same range — 3.50% to 3.75% — they have been since Dec. 10, 2025. In the meantime, U.S. inflation has increased from 2.7% in December to 3.5% in June.

The “hold” decision was expected, but Warsh’s vague comments on Fed strategy spooked the stock and bond markets. Stocks fell sharply and longer-term Treasury yields rose to 19-year highs.

Warsh, who has said he wants to limit forecasts and communications from the Fed, noted the sharp increases in bond yields over the last six weeks, saying:

Nominal and real yields are materially higher across the Treasury curve. In fact, some of the increases in market interest rates between FOMC meetings are among the most significant in the last two decades. … Even while at some level we haven’t done much in 42 days, the markets have done quite a bit.

Prices reacted in real time to incoming information, and the reduction in forward guidance may have been a factor. … This is, in my view, a change for the better, and we’re just getting started.

In other words, let the bond market set the way. Fine. But it isn’t the lack of communication that is causing bond-market jitters, it is an apparently endless war with Iran, massive federal deficits, rising energy prices and huge corporate bond-market borrowing by AI-driven businesses.

The Federal Reserve controls the short-term end of the bond market, where the U.S. Treasury has been shifting its borrowing in recent months because the short-term rate of about 3.75% is a lot more appealing than a 10-year note at 4.67%.

Take a look at this chart. After recent decisions to cut short-term interest rates, the longer-end of the Treasury curve has risen, sharply. The bond market is questioning the Fed’s credibility. In fact, I think an increase in short-term rates would cause longer-term yields to fall, not rise.

Click on image for larger version.

Traditionally, the yield of the 2-year note (currently 4.22%) is a good indicator of the direction for short-term rates, now 3.73%. That implies the market expects two 25-basis-point rate increases in coming months. But can Warsh deliver even one before the mid-term elections?

Just as the news conference was ending, President Trump was asked about the decision to hold short-term rates steady. He said:

Kevin’s fantastic. He’s a brilliant guy, smart. I know he’d love to see lower interest rates, but he’s got a board, and it’s a political board, and they want to keep rates up.

Trump didn’t do Warsh any favors. This harms Warsh’s credibility and calls Fed independence into question. But I think the fact that there were three dissenters in the Fed decision to hold was a good thing. All three wanted a rate increase. This sends the markets a message that there is strong debate on the open market committee.

Many times, Warsh delivers strong and inspiring statements on price stability, and then drifts into new ways of measuring inflation, replacing the Fed’s standard PCE index as a basis for rate decisions:

We’re going to deliver 2 percent inflation, and not a whisper more, but to achieve that I’m looking at a broader set of inflation data than PCE. So without sort of fully revealing my cards, I’m trying to understand, like my colleagues, what’s the underlying generalized change in prices that are happening in the economy. …

And so, if you would hear a message from me, yes, I care about what the PCE prints are. I care about what the contributions are from CPI and everything else. But my lens is broader than that.

This vagueness led Fed-watcher Claudia Sahm to write a post asking: “2% of what?” She wrote:

A half hour into the press conference, Paul Wiseman of the Associated Press asked the question:

WISEMAN: When you talk about the 2 percent inflation target, what measure are you relying on?

WARSH: Yeah, so, I’ll give two answers. First let me give the proper standard answer, the Federal Reserve every January outlines a statement of purposes and strategy, and in that strategy document, which I believe was dated January of this year, it describes a measure of PCE inflation as the — as the objective function there. I have enough of my — so that’s our number, we’re sticking with it. … Who knows come after next January what we might say about strategy. I suspect the task forces might have something to add.

Sahm concludes, “Warsh is using PCE as the yardstick now, but he suggested he might pick a different inflation measure in January 2027. Choosing a new inflation measure that reads 2% is not achieving price stability; it’s destroying the Fed’s credibility.”

By the way, this is what PCE and core PCE look like as of the June 2026 report. Both remain above 3%, well off the Fed target:

This is what Warsh said about the difficulty of the task ahead:

We’ve got no magic wand. This isn’t something that we’re going to be able to carry out in days or weeks. …I want to leave you with the optimism of a new central banker that we’re committed as ever to deliver, and to offer an assurance we will.

The path ahead

While Warsh was speaking, the stock market began tanking, the dollar weakened and longer-term bond yields rose. “This is a classic central-bank credibility shock,” Mark Cabana, rates strategist at Bank of America, told the Wall Street Journal. And he added this key point:

“If you actually want to get long-end rates down, there’s an argument that you need to raise front-end rates right now in order to establish that credibility.”

FYI, Bank of America is projecting three rate hikes this year. My opinion: Won’t happen — not in a mid-term election year with a president ready to pounce and lay blame for any negative development.

I think Warsh will be fine in the long term, when he finds the right measure of openness and guidance. But this is a very difficult time.

The war with Iran, which seems to be broadening into a regional conflict, is a massively unpredictable factor. The Fed can do nothing to control rising oil prices and the shock that can spread across the economy.

This is very close to a crisis, and time for more specific communication from the Fed, not less. Saying nothing, even while talking 30 minutes to reporters, is not going to work.

Note: I won’t be writing this weekend. Attending a family reunion.

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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Federal Reserve, I Bond, Inflation, Investing in TIPS | Tagged , , , | 57 Comments