Is There Now A Disconnect Between The US Fed and Treasury Department After Kevin Warsh Speech?

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The Federal Reserve and the US Treasury may seem to be at cross purposes right now, after Kevin Warsh’s Friday Jackson Hole speech, but in time that situation will be resolved.

What happened is that two weeks ago the US Treasury Secretary, Scott Bessent, got spooked by the fact that long-term Treasury bonds were ticking up, with the ten year bond heading towards 5%. He made statements to intervene in the market, saying that he would buy up to $4 billion in long-term bonds to force yields down. They kept going up anyway.

So, he then said that he might buy more than $4 billion.

They kept going up anyway.

Then last week, on Monday, he said he could get access to a trillion dollars to do it.

However, inflation is real and has not gone away, so everyone knows that doing this would be incredibly inflationary, hurt the dollar, and destroy the idea that the Federal Reserve is or could fight inflation.

But, bonds price appear to be under pressure as there no longer is enough foreign demand to buy enough of them to finance the now $40 trillion US debt.

But inflation is real, as you can see from this chart of the DBA agriculture ETF.