But on the scale of years inflation will dominate all transient idiosyncracies.
I think there's a decent chance that Warsh gets inflation under control. The recent rise in bond yields is 100% due to Fed action: the Fed stopped rolling over long-term treasuries and MBS into like-kinded securities in June, instead rolling them over to short-term treasuries. This shrinks the Fed's balance sheet on the long end of the curve and adds to it on the short end, just like Warsh said that he would do. It's net-neutral for the Fed's balance sheet as a whole, but the effect is to push up long-term yields, hold short-term yields steady (which have a floor of the Fed funds rate), and steepen the yield curve.
The next step - and Warsh has made no secret that this is his plan - is that once the long-term Treasury market finds an equilibrium without Fed support, use that information to figure out what the neutral rate is, and set short-term rates accordingly. The price action we're seeing is a strong indication that the neutral rate is significantly higher than anybody expects right now.
The bond market is also not expecting significant inflation over the next 10 years. You can see this through the TIPS spread, the difference in rates between the 10-year TIPS and the 10-year Treasury bond. It currently stands at about 2.35%, indicating that the market as a whole expects about 2.35% (CPI) inflation over the next 10 years.
https://en.macromicro.me/collections/51/us-treasury-bond/846...