Kevin Warsh, in his second press conference as Fed chairman, gave the bond market credit for doing his tightening for him. Within the hour, markets moved further and underscored what investors thought of his decision not to raise rates.

The 30-year Treasury yield jumped 10 basis points to 5.21%, its highest level in 19 years, while the 10-year yield — a key benchmark for the mortgage market — rose seven basis points to 4.67%. The 2-year Treasury yield, by contrast, fell four basis points.

The move reflected traders scaling back the odds of an imminent rate hike while also demanding more compensation to hold longer-dated government debt, on the belief that inflation would continue to bite. That reaction matters beyond Wall Street trading desks: when long-term borrowing costs rise, they feed into everything from corporate financing to home loans, making the Fed’s path more consequential even when the central bank leaves rates unchanged.

Equities also reacted negatively to the press conference. After an initial brief surge following the announcement, the Dow Jones Industrial Average fell 1,153 points, or about 2.1%, for its worst day since April 2025. The S&P 500 declined 1.5%, and the Nasdaq fell 1.7%.

Warsh had spent the hour telling reporters that his approach to non-forward guidance was working in part because markets could do the tightening for him.

“We’ve seen a material tightening, not just in nominal rates, but in real rates too, and we’re observing it,” he said. “Even while at some level we haven’t done much in 42 days, the markets have done quite a bit.”

That approach is intentional. Warsh’s signature move as chairman has been to remove forward guidance so that markets can price the economy rather than simply echo the Fed. “What I’ve really been trying to do,” he told a reporter during the conference, “is getting an unfiltered message from markets… and then trying to judge for ourselves what does that mean about our remit.” For investors, that leaves each press conference and inflation report carrying more weight, since the central bank is signaling less about its next move.

“What are you waiting for?”

Inflation has now run above the Fed’s 2% target for what Warsh himself counts as 63 months. He has held rates steady at both meetings he has chaired, while making clear that fighting inflation is his main priority and the standard by which his tenure should be judged.

Bloomberg’s Michael McKee asked Warsh directly during the press conference: “What are you waiting for?”

Warsh said the deliberation itself was the decision-making process. “The decision we made today, the discussion we had in that room, was the farthest thing from inertia I can imagine.” He said he had asked for “a good family fight” among committee members and got one. “I asked for a good family fight, and I got one,” he said at the press conference. He also said he would “not be constrained” by how traders price a September rate hike.

Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, wrote in a note that the hike has not been canceled, only delayed. “It’s likely that market pricing for a hike has simply been pushed forward. September remains a live meeting, and the incoming inflation data between now and then will be all that matters.”

The productivity problem

Another pillar of Warsh’s patience is a claim in the FOMC statement that, in his words: “The economy output is solid. Capex and productivity are strong.”

Productivity grew at a 0.3% annualized rate in the first quarter and is tracking near 1% in the second, a pace that many economists describe as solid to weak. Skanda Amarnath of Employ America said the statement went beyond an error. “It’s a bad sign for the FOMC that they are veering into factual inaccuracies in their official statement, and in ways that smell of potential politicking from the new Fed Chair,” he wrote on X. “It would be concerning if factual misrepresentations are getting elevated due to political convenience.”

Warsh’s case for bringing inflation down without a recession — and potentially without further rate hikes — runs through AI-driven productivity gains, an argument he made in a Wall Street Journal op-ed last November. But Barclays economists have found no statistically significant link between industry-level AI adoption and productivity growth, while a Federal Reserve Board discussion paper this month found micro-level gains that are “not adding up in aggregate.”

Warsh acknowledged the challenge himself, telling the Journal’s Nick Timiraos that the Fed is “inferring aggregate supply” and that “the surge in business capex in around AI, it’s making that calculation a little harder to judge.”

This story was originally featured on Fortune.com.