If you listen to the high priests of financial analysis—a group that includes hedge fund managers, Wall Street economists, and even pixel-stained pundits in the financial press—there’s a battle going on for the soul of the bond market.
On one side is Treasury Secretary Scott Bessent, buying back long-term government bonds. On the other is Federal Reserve Chairman Kevin Warsh, who must decide whether to help bring yields down or leave Bessent “in even deeper trouble,” as a newsletter from the Wall Street Journal recently put it.
There is just one problem with this account: Warsh and Bessent are not battling each other. And they do not see themselves as being on opposite sides.
Bessent regards the repurchase of Treasury debt as debt management, which is the responsibility of the Treasury Department. Warsh regards interest rate policy and control of the Fed’s balance sheet as monetary policy, which belongs to the central bank. He can support Treasury buybacks while maintaining a hawkish stance against inflation. He is perfectly comfortable with Bessent undertaking fiscal operations while he concentrates on monetary policy.
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