Scott Bessent on Kevin Warsh: 'Bond market has taken down more governments than howitzers'

Key Points:

• The September FOMC meeting occurs amid strong job reports and persistent inflation above the Fed’s 2% target, prompting potential policy action to balance maximum employment and price stability.
• The bond market reacted hawkishly after the June FOMC meeting, with longer-term yields rising despite no rate hikes, signaling investor concerns about inflation and economic risks not addressed by the Fed.
• Treasury Secretary Scott Bessent emphasized the Fed Chair’s independence and the administration’s trust in the Fed’s decisions, while also acknowledging the bond market’s significant influence on economic policy.
• Wall Street experts warn that if the Fed remains passive amid high inflation and supply shocks, the bond market may lose patience, pushing up long-term interest rates and increasing borrowing costs.
• Market observers caution that any surprise moves by Fed Chair Warsh could damage the Fed’s credibility and lead to higher risk premiums, negatively impacting investment and economic growth.