Investors Seek Signals From Warsh as Treasury Moves Complicate Fed’s Task

Kevin Warsh, the new chair of the Federal Reserve, will be aiming to reassure investors of his determination to battle inflation when he speaks at the first Jackson Hole conference of his tenure at the helm of the US central bank on Friday.

But in the picturesque setting of the Teton Range in the Rocky Mountains, he is facing a peculiar challenge: his goal of taming price gains may be at odds with US Treasury secretary Scott Bessent’s intervention to prop up US government debt.

“I have a very dim view of the Treasury’s rationale and its tinkering. I think it’s a self-limiting, self-defeating strategy,” said Greg Peters, co-chief investment officer at PGIM Credit. “The markets are looking for something out of Warsh, but I am not sure what he’s supposed to do here.”

Warsh and Bessent — both protégés of hedge fund billionaire Stanley Druckenmiller — meet regularly and are thought to maintain cordial relations. But investors and economists have pointed out that the priorities and strategies of the Fed and the Treasury seem increasingly at odds.

Kevin Warsh will address the annual Jackson Hole conference on Friday. © Reuters

Druckenmiller this week called the plan to increase the buyback of long-term Treasuries to at least $4bn a “mistake”. “This wasn’t liquidity management, it was price management — and a mistake far larger than $4bn suggests,” he said in a Wall Street Journal opinion column.

Krishna Guha, vice-chair at Evercore ISI, said the Treasury’s move might not have only unsettled investors, “but folks on the FOMC as well”.

“Warsh’s core view is hard to reconcile with what the Treasury is doing,” said Guha. “It’s hard for Warsh to appeal to market price formation in the bond market right now if you’ve got a Treasury secretary who’s telling you the prices are wrong and also is intervening in it.”