The USD regained its composure after Fed Chairman Kevin Warsh’s Jackson Hole speech last Friday. The futures market reinstated the possibility of a Fed hike (58% odds) at the September 15-16 FOMC meeting. Markets latched onto Warsh’s conditional comment that the Fed still has “work to do” if underlying inflation does not move towards 2% “clearly and with sufficient speed.”
There was, however, little that was genuinely new in Warsh’s message. By returning to his June inflation-first position, Warsh partly reduced the ambiguity he introduced in July, when he appeared willing to let markets tighten financial conditions by raising long-bond yields. His articulation of broad policy principles should not be confused with the European Central Bank’s more structured framework guidance. Warsh has restored a policy compass, not the decision-making map that markets have been seeking. He remains opposed to forward guidance and again declined to specify a reaction function.
Warsh steered clear of the controversy surrounding the overlap between monetary and Treasury debt management. The tension was visible after Jackson Hole. As markets raised the probability of a September Fed hike, yields rose across the Treasury curve. The move was not confined to the policy-sensitive 2Y yield; the 10Y and 30Y yields rose as well. A stronger-than-expected August nonfarm payrolls (+55k consensus vs. -23k previous) this Friday (September 4) could push the 30Y yield back above its August high of 5.34% and test the “Bessent Put.”
The put refers to Bessent’s August 18 announcement that the Treasury would at least double the maximum size of its long-end buyback operations from $2 billion to $4 billion per operation, effective September 9. The timing creates an awkward gap. Payrolls arrive on September 4, followed by the US Labor Day holiday on September 7, leaving September 8 as a window to test the Treasury before the facility takes effect. Bessent is not necessarily powerless. He could again emphasize the Treasury General Account (TGA), estimated at some $1 trillion.
With the “Bessent Put” running through November 4, it perfectly straddles midterms on November 3. President Donald Trump is simultaneously seeking to lower pump prices and reverse weak approval ratings ahead of the vote, including a Venezuelan oil agreement and talks with domestic refiners on September 1. However, those efforts are running against hedge funds positioned for further increases in gasoline prices.
For investors, the “Bessent Put” is viewed as a technical shock absorber rather than a solution to structural pressures confronting the Treasury market. Buybacks can smooth market dislocations, but they cannot address the term premium investors demand to finance record federal debt, particularly when Treasury issuance competes with enormous AI-related corporate borrowing. Washington’s aggressive economic sanctions against Iran combined with the US-Canada trade war reinforced concerns over the weaponization of the global financial system. That keeps de-dollarisation risks alive, leaving foreign central banks reluctant to increase their exposure to long-dated US Treasuries.
For now, the USD benefits from hawkish Fed signals and the cushioning effect of the “Bessent Put." The greenback’s longer-term structural risks remain intact.
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