Newsletter · 2026-08-24 · Ashutosh Agarwal

Warsh and Bessent Pull the Bond Market in Opposite Directions Before Jackson Hole - The Dollar Brief - Week of August 24, 2026

The Dollar Brief for the week of August 24, 2026. Podcast synthesis on the widening split between Fed chair Kevin Warsh and Treasury Secretary Scott Bessent, a buyback that reversed within a day, and a September Fed call that has gone genuinely three-sided.

The Dollar Brief

Week of August 24, 2026: Warsh and Bessent Pull the Bond Market in Opposite Directions Before Jackson Hole

Last week the Treasury tried to stare down the bond market. The bond market stared back, and by Friday it had won the exchange. But the more interesting thing to come out of the week wasn't the fight between Washington and the market, it was the fight that's opening up inside Washington.

Here it is in one breath. The Treasury Secretary, Scott Bessent, wants long-term interest rates lower and is intervening to get them there. The new Fed chair, Kevin Warsh, wants the Fed to step back and let the market set rates on its own. These two men are, by several accounts, old friends. Right now they are pulling the bond market in opposite directions, and on Friday, August 28, Warsh gives his first big speech as Fed chair, at the Jackson Hole gathering of central bankers in Wyoming. It may be the most anticipated Fed speech in years, because for once the question isn't "will they cut or hike?" It's "what does this new chairman even believe?"

The dollar, caught in the middle, had its worst day in ages on the news and drifted to a three-month low. Let's walk through it.

(Quick vocabulary, used throughout: a bond's "yield" is just the interest rate it pays. Bond prices and yields move in opposite directions, when investors dump bonds, prices fall and yields rise. The "DXY" or dollar index measures the dollar against a basket of other major currencies. A "buyback" is the Treasury buying back its own older bonds. "Yield curve control," or YCC, is a central bank pinning an interest rate at a chosen level and printing money to defend it.)

TL;DR

• The real story is a turf war between the Fed chair and the Treasury Secretary. As Zaid Admani put it, "you have the Fed Chair and the Treasury Secretary, who are reportedly longtime friends, by the way. They're pulling the bond market in opposite directions right now" (The Rundown, Aug 22).

• The Treasury doubled its bond buybacks, and by Friday, the market had called the bluff. J.P. Morgan's rates chief Jay Barry said flatly that none of the Treasury's own three yardsticks for sizing the program justified the move: it "seems pretty small… but the signaling is what matters here" (At Any Rate, Aug 21).

• The Wall Street Journal's Greg Ip's verdict was brutal. "We instead got public relations. We got cosmetics. Basically, Bessent dabbling in the market, being the hedge fund guy" (The Exchange, Aug 21).

• Traders think Friday's Warsh speech is a genuine coin toss on communication. WSJ Fed reporter Nick Timiraos called Warsh "evasive by design" and said the market widely felt his tight-lipped July press conference "did not pay off" (WSJ's Take On the Week, Aug 23).

• On the dollar itself, one desk called it a regime change. "Two Sigma sell-off in the dollar index… the message is being sent," said Tony Greer, while Jared Dillian added, "This is not a fade. This is a trade. This is going to continue for many, many days… this is day one of a new regime under Kevin Warsh" (The Macro Dirt Podcast, Aug 20).

• But the loudest dollar bull says not so fast. BMO's FX chief Mark McCormick: "I wouldn't make [a weak-dollar call] yet… this is kind of prime time for the dollar," targeting the DXY back up to 103 and the yen down to 165–170 (Bloomberg Surveillance, Aug 18).

• September is now genuinely too close to call. The base case on the desks is a hold, BMO's Ian Lyngen: "the path of least resistance is for no hike" (Bloomberg Surveillance, Aug 19), while David Rosenberg leans the other way entirely, toward a cut (Wealthion, Aug 21).

• The election clock is doing quiet work. Nomura's team found the Fed "hasn't [made] a hawkish pivot in the second half of [an] election year in the last four decades" (Nomura – The Week Ahead, Aug 21).

• Foreigners are quietly stepping back from Treasuries. Bob Parker of ICMA noted foreigners own "around 25%" of the Treasury market, leaving it "very vulnerable" (Squawk Box Europe Express, Aug 21); Luke Gromen offered a striking gauge of the shift toward gold (Futures Edge, Aug 20).

• Washington's answer to weak foreign demand: manufacture new demand at home via stablecoins. Rep. Warren Davidson confirmed the Senate's "Clarity Act" crypto vote is set for the afternoon of September 15 (The Paul Barron Crypto Show, Aug 21), though prediction markets still put its odds near one-in-five (Empire, Aug 20).

What's new

The main event: the Fed and the Treasury are now openly at cross-purposes

For months the dollar story was really a bond story. This week it became a people story, and the two people are the two most powerful economic officials in the country.

The clearest plain-English framing came from The Rundown (Aug 22). Host Zaid Admani laid out the awkward tension: new Fed chair Kevin Warsh "has argued that markets need to rely less on constant updates from the Fed on where interest rates should be and instead do more genuine price discovery via market forces. And that's what's been happening. The bond market discovered that long-term government debt should be yielding more than 5%. But the problem is the U.S. Treasury Department doesn't want that to happen." His summary: "you have the Fed Chair and the Treasury Secretary, who are reportedly longtime friends, by the way. They're pulling the bond market in opposite directions." And it gets worse, because Warsh also wants to shrink the Fed's own huge pile of bonds, which would push long-term yields up, the exact opposite of what Bessent is trying to do.

Morning Brew Daily (Aug 21) sharpened the personalities. Warsh, they said, "has ripped up the rulebook… I'm not going to tell markets what to do. I'm going to let markets take the lead." Meanwhile Bessent is looking at rising market rates and saying, in effect, "That is not good news… so I'm going to intervene very aggressively in ways we haven't seen in recent memory to bring them back down." The hosts couldn't resist the biographical detail: "it's probably not a coincidence that this guy made his money, and he's extremely rich, as a bond salesman. He calls himself the nation's top bond salesman in a previous life… and now he became Treasury Secretary and is doing the exact same thing in a different role." There is a way for the two to make peace, the Fed could tilt its holdings toward short-term bills and away from long bonds, which is exactly what Bessent wants, but for now, it's a standoff.

The buyback that worked for a day and failed the next

Here's what actually happened. The Treasury said it would roughly double the size of its buybacks of long-dated bonds, from a $2 billion maximum per operation to at least $4 billion, starting September 9, and pay for it by selling more short-term Treasury bills. The idea: soak up some long bonds, nudge long-term yields down. The 30-year yield, which had hit about 5.3% (a level not seen in roughly two decades), dropped toward 5.18%. Then, within a day, it was back above 5.25%.

The single most damning breakdown came from J.P. Morgan's Jay Barry on At Any Rate (Aug 21). He was blunt that this was not a routine tweak: it was "extremely unusual for the Treasury Department to make a debt management strategy announcement outside of its quarterly refunding", the last of which had been just two weeks earlier, when they left buybacks unchanged. He pointed out the actual dollar amounts are tiny: an extra roughly $14 billion this quarter, about $64 billion annualized, against a Treasury that issues close to $5 trillion of coupon bonds a year in a $31 trillion market. And crucially, the Treasury's own advisory committee had built a scoring system with three signals for when to resize buybacks, and, Barry said, "none of those three factors indicate that they should have made a change to the buyback program at this point." His read on the real motive was polite but unmistakable: the administration wants rates lower, the Fed won't cut, global forces are pushing yields up, and "we have the midterm elections in two and a half months."

His warning was subtle and worth sitting with: the Treasury's superpower has always been being "regular and predictable," which lets the U.S. borrow at a slight discount despite its enormous debt. Improvising off-schedule chips away at that reputation. And leaning ever harder on short-term bills to fund these buybacks is storing up trouble: the bill share of the debt is already unusually high for an economic expansion, so the next time a recession forces the Treasury to lean on bills, "you may not have the same benefits you had in the past."

The Wall Street Journal's Greg Ip was less polite on The Exchange (Aug 21). He listed four forces pushing long rates up, sticky inflation, the corporate borrowing binge to fund AI, Japan raising rates, and the deficit, and noted that "three of those four things [Bessent] can't do anything about. The fourth thing, the deficit, is the one thing he or the president can do something about, and it's one thing they haven't done anything about. So what did we get? We instead got public relations. We got cosmetics. Basically, Bessent dabbling in the market, being the hedge fund guy… The market's not buying it." His bigger point: the Treasury market's automatic "flight to safety" status is quietly fraying, compared with things like swap rates or top-rated corporate bonds, Treasuries "just don't look as super low as they used to."

CNBC's Steve Leisman, on the same show, added the uncomfortable long-run possibility: if we're entering a world of higher growth and higher capital demand from AI, the Fed's neutral interest rate might be closer to 3.5% or even 4%, in which case, "don't expect any Fed rescue for the bond market in the next year or two."

What is (and isn't) really happening, the "it's not money printing" chorus

One theme rang out across very different podcasts: this is not the Fed firing up the printing press. On The Macro Dirt Podcast (Aug 20), Jared Dillian was careful: "a lot of people are calling this yield curve control. It's not YCC… really what this is is it's an admission out of the government that they reached their point of maximum pain on yields, long-term yields, and they had to do something about it." Asked directly if "the printer is back on," he said no, "It's not the printer… I think this is a different type of operation." But the symbolism, he said, "is huge. That the government has no tolerance for higher interest rates." That's why gold ripped and the dollar got hammered.

And on the market reaction, his partner Tony Greer tallied a genuinely violent day: a "Two Sigma rally" in long bonds and gold, gold miners up 9%, and a "Two Sigma sell-off in the dollar index" (a "two-sigma" move is a very large, statistically unusual one). Dillian's takeaway: "This is not a fade. This is a trade. This is going to continue for many, many days… this is day one of a new regime under Kevin Warsh." (A trader's directional call, not a forecast set in stone.)

Friday's speech: the whole market is watching one man's communication style

This is the genuinely fresh, forward-looking piece. Normally Jackson Hole is about the next rate move. This year, the drama is whether Warsh will explain himself at all.

The best single conversation was on WSJ's Take On the Week (Aug 23), which brought in the WSJ's chief Fed reporter Nick Timiraos and Columbia economist (and former Fed governor) Frederic Mishkin. Timiraos described how Warsh differs from his predecessors: "He's not giving long answers. He's evasive by design. I don't mean that pejoratively." The problem, he said, is that Warsh isn't just dropping the old habit of promising future rate moves, which almost everyone agrees is fine to drop, he's also declining to explain how he reads the economy, "why they held rates steady in July, even though there were three people who wanted to raise them." And "the general consensus was that this sort of tight-lipped, less is more strategy at the July press conference did not pay off."

Mishkin's contribution was the deepest. His core argument: transparency, done right, is not about promising anything, it's about the public understanding the Fed's reaction function, i.e. how it will respond if inflation rises or unemployment climbs. "If you get the markets and the public to understand your reaction function… the markets will do a lot of the work and heavy lifting for the Federal Reserve." His worry is that Warsh sounds like he wants "to go back to what was true under Alan Greenspan", deliberately "cryptic communication, sort of just trust me, I'm the expert." That can work with a maestro, Mishkin allowed, but good institutions matter more than good individuals: "a good institution means that bad people still don't do a terrible job."

Mishkin also said the quiet part out loud about the politics: Warsh "is appointed by Donald Trump. And we know that if you cross Donald Trump, you're in deep doo doo… And we also know that Donald Trump wants lower interest rates." The tension between a Fed chair who wants to look tough on inflation and a president (and Treasury Secretary) who wants cheaper money is the subtext of Friday.

What should you actually expect Warsh to say? The desks broadly agree: not much on rates. Nomura's Rishi Sharma expects Warsh to "focus on Fed's broader intellectual framework than on near-term policy path", his ideas on the balance sheet, the mix between rates and balance-sheet policy, even the notion of "productivity-led disinflation from AI" (Nomura – The Week Ahead, Aug 21). BMO's Ian Lyngen agreed the very decision to show up was "to make the point that he is not going to offer any concrete forward guidance" (Bloomberg Surveillance, Aug 19). Watch for whether he says anything at all about how he reads today's economy, that's the tell.

The September decision: hold, hike, or… cut?

This is where the debate gets genuinely three-sided.

The base case is a hold. BMO's Ian Lyngen: "given the economic data that we have seen, the path of least resistance is for no hike." But he flagged a logical trap in Warsh's whole philosophy: the idea that a jittery market is "doing the heavy lifting for monetary policymakers… is somewhat circular. Eventually the Fed will need to hike rates if the argument is that… the market is doing the heavy lifting."

The doves, even a rate cut, have a real case. David Rosenberg made it forcefully on Wealthion (Aug 21): "I'm actually leaning to the view… that their next move will be to cut rates, not to raise." His reasoning is about slack: "we've had three quarters in a row where real GDP growth has averaged less than one and a half percent," below the economy's ~2% potential, which builds up disinflationary pressure. He noted the September-hike odds in futures markets fell from about 80% before the last jobs report to around 40% now. And he pushed back hard on the idea that surging long-term yields signal an inflation scare: "this run-up in yields… has all been driven by the term premium… by real interest rates. Inflation expectations… have just been range bound for the better part of the past four years." (The "term premium" is the extra yield investors demand simply for the risk of holding a bond for a long time.) He was pointed about Warsh's rosy framing: "how can you call the economy solid or resilient" at a 1.4% growth trend?

The hawks haven't gone away. Nomura still sees markets pricing "a meaningful probability of a hike by October," driven by lingering inflation and worries about the Fed's credibility. And the case for waiting isn't just data, it's the calendar. Nomura's team dug through four decades of history and found the Fed "hasn't [made] a hawkish pivot in the second half of the election year in the last four decades." They cited chapter and verse: in 1994 (a midterm year) the Fed held in the run-up and then delivered a 75-basis-point hike one week after the election. With midterms on November 3, that history "on the margin… supports the case for a hold" (Nomura – The Week Ahead, Aug 21).

The dollar: a real slide, or a stretched one?

The bears had the momentum. Beyond Macro Dirt's "new regime" call, technician Steve Barton flagged a "bear flag" pattern on the dollar index pointing to a break below a 15-year trading range (In it to Win it, Aug 20).

But the most rigorous counter-argument, the steel-man for the dollar bulls, came from BMO's Mark McCormick on Bloomberg Surveillance (Aug 18). His view: the recent slide is mostly about crowded positioning unwinding, not fundamentals. "What's really driven the dollar lower recently… is positioning and the market's… re-engagement with Goldilocks. I really don't think it's about rates." He argued the crowd got "very wrong on the dollar again this year," piled in, and then got shaken out: "it's cooled, not collapsed." His target is actually higher, DXY to 103, on the view that U.S. growth reaccelerates, the Fed hikes in the second half, and rate differentials favor the dollar, though he frames 103 as the peak for this quarter. On the yen, he thinks Japan has to "let it go weaker," with 165 the line and 165–170 in play if the Fed hikes while the Bank of Japan drags its feet. His history lesson on currency interventions is worth remembering into any future yen rescue: they only work "if the fundamentals are kind of moving in that direction to begin with." Otherwise, "they're kind of applying a Band-Aid and trying to buy time."

Who's actually buying all these bonds? Increasingly, fewer foreigners

Underneath the week's drama is a slow-moving problem: the traditional buyers of U.S. debt are backing away. Bob Parker of the International Capital Markets Association put a number on the vulnerability: foreigners own "around 25%" of Treasuries, which makes the market "very vulnerable to foreigners selling," especially with the budget deficit above 6.5% of GDP. His nuance, though, mattered, he called current behavior "investor caution" rather than an outright "buyer strike" or "bond vigilante" revolt (Squawk Box Europe Express, Aug 21).

The most vivid, if more speculative, version of the story came from Jay Martin, who tied foreign selling to the energy crisis: with the Strait of Hormuz effectively shut, oil-dependent nations are selling their most liquid dollar asset, Treasuries, to raise cash for fuel. He cited foreign central-bank Treasury holdings at the New York Fed dropping "to their lowest level since 2012," with Japan holding $1.2 trillion and the UK $895 billion (The Jay Martin Show, Aug 22). (Martin is a commentator building a dramatic narrative around the Iran conflict, treat the geopolitical framing as opinion, not confirmed flows.)

And the sharpest gauge of the shift, from Treasuries toward gold, came from Luke Gromen on Futures Edge (Aug 20). He tracks foreign-held Treasuries as a share of the market value of America's official gold. Historically that ran 40–60%. Even after gold's huge run, "it's 13%." In the 1980 dollar crisis it was 135%. His read: "the debasement trade is back on, baby." He put a $7,800 target on gold "inside of five years." (Gromen is a macro pundit with a long-running debasement thesis; the gold-vs-Treasuries ratio is his own metric.)

Washington's plan B: build new dollar demand out of stablecoins

If foreigners are buying fewer Treasuries, where does new demand come from? Increasingly, the answer coming out of Washington is: from crypto. A "stablecoin" is a digital token pegged to the dollar and, under last year's GENIUS Act, required to be backed by safe assets, mostly short-term Treasury bills. So every dollar parked in a stablecoin becomes, in effect, a forced buyer of U.S. government debt.

The near-term catalyst is the "Clarity Act," a broader crypto market-structure bill. Rep. Warren Davidson, an operator here, as a sitting congressman who co-wrote the original 2018 version, confirmed the timeline on The Paul Barron Crypto Show (Aug 21): "Senator Thune scheduled this for a vote on September 15th… in the afternoon." His political read: the bill "unites Republicans and divides Democrats," and heading into the election "both parties want to be… seen as good on" crypto. But he was candid that the Senate's version "keeps getting worse" with add-ons.

The most provocative strategic theory came via Custodia Bank's Caitlin Long, discussed on Tom Bilyeu's Impact Theory (Aug 21): that the Treasury just issued rules recognizing non-U.S. stablecoins, positioning itself to steer the vast offshore "eurodollar" market. The theory on the show: capture 6–10% of that market as it gets tokenized by 2030, force those tokens to hold short-term U.S. debt, and you create a whole new base of buyers for the short end, conveniently, right where Bessent wants to shift issuance. (This is a speculative reading of policy intent, floated by crypto-industry figures, not confirmed Treasury strategy.)

A useful reality check: prediction markets are far less sure the Clarity Act passes at all. On Empire (Aug 20), Dragonfly's Rob Hadick noted Polymarket odds "around 18–20%," with some insiders calling it "a coin flip", and the market is positioned for it to fail. The ethics fight over the president's own crypto holdings remains the sticking point.

Is any of this legal, or wise? The independence question

A quieter but important thread: does a hyperactive Treasury undermine the Fed? On RenMac (Aug 21), the team argued that Bessent's interventions in long-term yields could compromise Fed independence, and that if the Fed ends up absorbing more short-term bills onto its balance sheet, that starts to look like indirect debt monetization, brushing against the spirit of the 1951 Treasury-Fed Accord that separated the two institutions. CNBC's Steve Leisman flagged the "inherent irony" of it all: Warsh preaches market autonomy while Bessent intervenes aggressively, two friends, two philosophies, one bond market.

The debate

Does the buyback matter? Yes, as a signal, no, as a fix. The one thing nearly everyone agrees on is that $4 billion an operation is trivially small against a $31 trillion market ("draining a swimming pool with a coffee mug," per The Rundown). The disagreement is about what the signal means. Bulls of the trade (Macro Dirt) say it marks the government's pain threshold and is bullish gold and bearish the dollar for "many days." Skeptics (Jay Barry, Greg Ip) say it's cosmetics that erodes the Treasury's hard-won credibility and can't touch the real driver, the deficit. The Friday scoreboard, yields back above where they started, favors the skeptics for now.

September: hike, hold, or cut? All three views were voiced with conviction. Hold is the desk consensus (Lyngen, Nomura), reinforced by the election calendar. Cut is Rosenberg's contrarian call, built on four quarters of sub-potential growth and falling hike odds. Hike still has adherents worried about five years of above-target inflation and Fed credibility. The honest answer: it's a coin toss, and Warsh isn't tipping his hand.

The dollar: trend or bounce? Bears (Macro Dirt, In it to Win it) see a technical breakdown and a new weak-dollar regime. Bulls (McCormick) see a crowded short getting squeezed and target a rebound to 103. The swing factor is Friday and the September data: soft data and no Fed rescue favors the bears; a growth reacceleration and a September hike favors McCormick.

The trades in play

Where episodes named actual expressions (all are speakers' own positioning, not advice):

• Own gold over long Treasuries. The through-line of the debasement crowd, Gromen ("the debasement trade is back on"), and the Macro Dirt desk buying gold and miners on strength (Futures Edge; The Macro Dirt Podcast).

• The front of the yield curve, not the long end. Rosenberg: "there's a real opportunity at the front end of the yield curve… The two-year note is actually a very good place to be," on his view the last hike gets priced out (Wealthion).

• Short the dollar / long the euro as the momentum trade, with McCormick as the explicit fade, targeting DXY 103 (The Macro Dirt Podcast; Bloomberg Surveillance).

• The yield-curve steepener is unwinding. Macro Dirt flagged hedge funds who had piled into the "steepener" (betting long rates rise faster than short) getting flushed as the Treasury sells bills and buys long bonds, the curve twisted the other way (The Macro Dirt Podcast).

Read-throughs

• Watch Friday's style, not the substance. The market has effectively conceded Warsh won't signal a rate move. The tradable question is whether he explains his reaction function at all. If he does, expect relief and a steadier long end; if he stays cryptic, the "uncertainty premium" that's been lifting long yields likely persists (Mishkin, Timiraos, Lyngen).

• The deficit is the only real lever, and no one's pulling it. Barry, Ip, and Nomura all converge here: buybacks, bill shifts, and yen interventions are Band-Aids. Until there's credible fiscal consolidation, the "term premium" that's driving long yields stays elevated. Jason Furman made the same point plainly, solving it needs "tax increases or spending cuts" (Balance of Power, Aug 21).

• AI borrowing is now competing with the U.S. government for cash. Record corporate issuance (~$1.9 trillion this year, much of it AI-related) is crowding into the same bond market and helping push yields up, a structural, not one-off, pressure (The Rundown; The Compound and Friends, Aug 18).

• The election is the invisible hand on policy. From the buyback timing (Sept 9–Nov 4, per Wall Street Unplugged, Aug 19) to the Clarity Act's September date to the Fed's four-decade aversion to election-season hikes, the November 3 midterms are shaping the calendar. And the political backdrop is shifting: one pollster put Democrats' odds of taking the House at "85%" on the betting markets (TFTC, Aug 17), a result that could change the fiscal math entirely.

What changed this week

• The story shifted from "market vs. Washington" to "Washington vs. itself", the Warsh (let markets work) vs. Bessent (intervene) conflict moved into the open, with multiple outlets framing two old friends now pulling opposite ways.

• The buyback's credibility cracked fast. The day-one rally fully reversed, and a J.P. Morgan desk publicly showed the Treasury's own metrics didn't justify the move, handing the "it's just cosmetics" camp the evidence.

• Jackson Hole (Fri Aug 28) became a referendum on communication, not rates, an unusual setup that raises the odds of a market reaction to how Warsh speaks.

• The September call widened into a genuine three-way split, with a credible voice (Rosenberg) now arguing the next move is a cut, not a hold or hike.

• The de-dollarization thread got harder data, with foreign Treasury ownership (~25%) and the gold-vs-Treasuries ratio (13% vs. a 40–60% norm) quantified, even as a sober voice (Parker) called it "caution," not a "buyer strike."

Levels referenced are approximate, from mid-to-late-August U.S. sessions: the 30-year Treasury yield having touched ~5.3% (a roughly two-decade high) before easing to ~5.18% on the buyback and climbing back above 5.25%; the 10-year around 4.7% (a recent 30-year auction cleared ~5.216% and the 10-year ~4.683%, per Follow the Money); the dollar index sliding to a three-month low near/just under 100 (McCormick's peak target 103); the euro near a three-month high; dollar-yen around 159 with 165 the watched line; the Treasury buyback doubled to at least $4bn/operation (10s/20s/30s) from Sept 9, ~$14bn extra this quarter / ~$64bn annualized, financed with bills; US total public debt just past $40 trillion, the deficit above 6.5% of GDP; foreigners owning ~25% of Treasuries; record ~$1.9tn corporate investment-grade issuance YTD; the Clarity Act Senate vote set for Sept 15, Warsh's Jackson Hole speech Fri Aug 28, the Sept 16–17 FOMC, and the Nov 3 midterms.