Bonds Will Break Warsh At Jackson Hole
Submitted by QTR's Fringe Finance
I predicted back in May that the bond market would “break” Washington. Last week we saw signs of that with the Treasury’s increased intervention at the long end of the curve.
With Treasury already panicking, I expect bonds to “break” the Fed next and the first signs to show up at Jackson Hole this Friday (assuming we can make it until then). Already, the Treasury market spent much of last week making it abundantly clear that Kevin Warsh’s honeymoon as Federal Reserve chairman is over.
The 10 year yield climbed toward 4.74%, while the 30 year briefly pushed above 5.3%, reaching levels not seen since before the financial crisis.
Even after Treasury Secretary Scott Bessent announced plans to at least double certain long dated bond buybacks, yields merely retreated from their most alarming levels rather than signaling that the underlying problem had disappeared. That underlying problem, of course, is now $40 trillion in debt and reckless fiscal spending.
That’s why as of Monday morning, the 10 year was still around 4.71% and the 30 year near 5.25%, leaving the long end of the Treasury market shaky, unconvinced and very much in charge.
I have always said that the Federal Reserve will have a spine right up until the moment it can no longer afford one. There is an old market saying that markets stop panicking when the Fed starts panicking, and there is more truth embedded in that sentence than in most economics textbooks.
Central bankers can talk about discipline, credibility and price stability for as long as financial conditions remain orderly, but when the bond market begins threatening the federal budget, the housing market, equity valuations and the plumbing of the financial system simultaneously, the definition of “responsible monetary policy” tends to become much more flexible.
That is why Warsh’s first Jackson Hole speech as Fed chairman, scheduled for Friday, August 28, could be so important. He is scheduled to speak at 10:00 a.m. Eastern time, 3:00 p.m. in Dublin. Arguably this speech will be the most consequential guidance he’ll give the market since assuming his role.
Every single word will be paid attention to. If Warsh chooses a bagel over his regular flapjacks for breakfast, that will be analyzed. His tie will be analyzed. The number of bathroom breaks he takes will be international news. The market, now begging for reassurance, will be looking for anything optimistic to cling to.
Jackson Hole gives Warsh an opportunity to...(READ THIS FULL ARTICLE 100% FREE HERE).