Goldilocks hangs in the balance of the Bessent, Warsh, Trump media drama
We find ourselves at CPI/PPI week, just prior to FOMC week. Let the cacophonous Misdirection Olympics begin! You can click the images to yield the articles.
Media outlet #1 advises that president Bessent is about to rig the bond market to his liking.
Media outlet #2 wants us to believe that not only is Bessent (suppressing yields on the long end) working against poor Chairman Warsh, but so too is the President.
My personal view (tin foil in place) has been that Bessent/Warsh are playing good cop/bad cop where rates are concerned. Bessent’s support of long-term bonds (theoretical repression of yields) is the good cop stuff Trump wants. But Warsh’s bad cop/inflation fighting routine is key toward flattening yield curves, Operation Twist style.
If I am correct that Bessent has laid out a nice curve flattening Goldilocks plan (ref. Operation Twist 2.0? Bessent & Warsh Work the Yield Curve) with his (the word “his” is quite intentional) Fed chief, well the Trump infusion is adding noise and theater to what was already going to be a rocky couple of weeks.
The Bessent plan, in my view, goes like this:
He, president Bessent, lays out the plan on the long end. Yay! QE is here and they’re gonna inflate and ruin the US dollar. But wait, there is a bookend to the plan, and into that role steps Warsh, talking hawkish at Jackson Hole…
…with the media promoting a scenario pitting him against not only Trump, but Bessent too.
I am going to stick with a view that where Bessent and Warsh are concerned, that’s bullshit. It seems obvious that they’ve adopted assigned roles of loose on the long end and tough on the short end. That by definition implies a yield curve flattener, which itself implies Goldilocks.
But… Trump. Here is where it gets complicated, and really funny. It is better than even odds that Trump is not part of the scheme. He probably doesn’t even know what a yield curve is. I think he is a blunt force instrument doing what a sledgehammer or a mallet does; pounding.
The funny part is that I can see Bessent wincing and in his robotic way trying to summon the patience to express to Trump in human terms what he should do so as not to fuck up the plan. I can see him coming home to his husband at night… ‘honey, pour me a stiff one, straight up, he’s at it again’.
Bottom line is in my view at least, Bessent and Warsh are working at least partially in unison on a shared objective. Trump, however, is just being Trump. It’s funny.
