In early August, the pricing focus of the US Treasury market quickly shifted from economic growth to inflation constraints and policy credibility. The Federal Reserve kept interest rates unchanged at its July meeting, but Chairman Kevin Warsh failed to provide a clear framework for policy response, leading to a concentrated sell-off of long-term Treasury bonds. Around August 6th, the 10-year Treasury yield was approximately 4.63%, and the 30-year yield was approximately 5.18%, the latter having previously risen to around 5.27%, reaching its highest level since 2007. Meanwhile, interest rate futures reflected a probability of approximately 55% for a 25 basis point rate hike in September. This pricing indicates that the market debate is no longer limited to the next interest rate adjustment, but rather focuses on whether the Fed can maintain the credibility of its inflation target while reducing forward guidance. Typically, increased market expectations for a near-term rate hike first push up short-term yields such as the two-year yield. However, in this round of volatility, the rise in the 30-year yield significantly exceeded that of the short-term yields, resulting in a steepening yield curve. This means that bond investors are concerned not only about whether interest rates will be raised in September, but also about the inflation center over a longer period, fiscal financing pressures, and the term premium required to hold long-term bonds. After the 30-year yield broke through 5.20%, the market effectively increased its compensation requirements for long-term uncertainty. When central banks reduce policy guidance, investors cannot narrow down the probability range of future interest rate paths through official statements; they can only rely on inflation, employment, energy prices, and bond supply for repricing. As a result, the same set of economic data may trigger greater yield volatility, and long-term bonds will become more sensitive to information changes. It is worth noting that rising long-term yields cannot be simply interpreted as the market believing that the Fed will inevitably continue to raise interest rates. It may also mean that investors believe policy action is too slow, that future tightening costs will be higher, or that the time required for inflation to fall will be longer than previously expected. The Fed's preferred personal consumption expenditure price index rose 3.7% year-on-year in June, significantly higher than the long-term target of 2%. Previously, the overall index rose 4.1% year-on-year in May, and the core index rose 3.4% year-on-year, indicating that price pressures not only come from volatile energy projects, but also from sticky underlying inflation. In this context, reducing forward guidance itself is not the problem. What truly raises market concerns is that the Fed has not simultaneously provided a sufficiently clear policy response function. For example, questions such as which inflation indicators will trigger policy adjustments, the extent to which energy prices will pass through to service prices requiring action, and the degree to which a slowdown in employment can offset inflation risks lack clear explanations. Warsh previously emphasized that the Fed's commitment to price stability and full employment remains unchanged and that it has established multiple working groups to assess monetary policy tools, analytical frameworks, and decision-making methods. Warsh argues that over-reliance on forward guidance can bind central banks to previous statements, reducing their flexibility to adjust policy based on new data. This logic is valid. If the market mechanically translates officials' rhetoric into interest rate paths in advance, price discovery may revolve around the wording of press conferences rather than economic fundamentals. However, reduced communication does not eliminate policy impact. Once central banks no longer compress market expectation distributions, different investors will assess the policy path based on their own models, leading to a widening divergence in interest rates. For the bond market, this typically means increased implied volatility, term premiums, and risk hedging costs. Currently, the five-year inflation swap, starting five years later, is around 2.4%, not yet indicating that long-term inflation expectations are completely out of control. However, this indicator only shows that long-term expectations are still close to a manageable range and cannot eliminate the risk of a short-term resurgence in inflation. Stable long-term expectations and a sell-off in long-term bonds can coexist because yields also incorporate factors such as real interest rates, term premiums, bond supply, and policy uncertainty. Warsh is expected to further explain his policy framework at the Jackson Hole conference in August. The market's focus is not on whether he will provide a clear interest rate path again, but rather on whether he can explain how the Fed identifies persistent inflation and under what circumstances it will adjust interest rates. If the Fed only emphasizes data dependence without explaining the weighting of different data points, this so-called data dependence could evolve into uncertainty at each meeting. Conversely, even without committing to specific actions, clearly explaining the decision-making rules can reduce market concerns about policy missteps. Furthermore, the Fed's approximately $6.7 trillion balance sheet remains an important variable, but interest rates remain the primary policy tool at this stage. If balance sheet reforms are interpreted by the market as additional tightening, it could further increase long-term term premiums. At 20:48 Beijing time, the US dollar index was at 99.77.