Walsh meets Bessant: Who has the power to set currency prices?

As the 2026 Jackson Hole Economic Symposium kicks off, global investors are once again focusing their attention on two figures at the top of Washington's power pyramid: U.S. Treasury Secretary Bessant and Federal Reserve Chairman Kevin Warsh. This is not merely a routine policy dialogue, but a fundamental philosophical clash over "who holds the power to set currency prices." At this crossroads of monetary policy, their differences have become public. Warsh has long advocated for the Federal Reserve to reduce forward guidance, returning the initiative to adjust long-term interest rates to the market; while the Treasury Department under Bessant's leadership has frequently "drawn its sword," intervening in the U.S. Treasury market through unconventional means, aiming to artificially suppress financing costs. Recently, Bessant announced that the repurchase of long-term Treasury bonds would at least double. He publicly explained that the current 30-year Treasury yield has climbed to a 19-year high, not based on fundamentals, but rather a manifestation of market dysfunction. However, this move sparked strong skepticism in the capital markets. Billionaire investor Stanley Druckenmiller, a mentor to both men, bluntly stated that this was not "liquidity management" but rather blatant "price manipulation." He warned that such actions, which erode the credibility of the Treasury Department, could have counterproductive consequences. Will Compernolle, a macro strategist at FHN Financial, also believes there is currently no evidence that US Treasuries have been oversold. The surge in yields is driven more by fundamental factors such as strong economic growth, sticky inflation, and expectations of Fed rate hikes. If yields are artificially suppressed, market pressure will inevitably spill over to other areas—the recent weakening of the dollar is a clear signal of this. Unlike Bessant's "interventionist" approach, Warsh exercised considerable restraint in his first year as Fed Chairman. He has long criticized the Federal Reserve's past large-scale asset purchase programs (QE), arguing that interest rates should be priced by the market, not by central bank intervention, unless there is a severe market collapse. Stanford University finance professor Hanno Lustig aptly summarized their disagreement in a briefing from the Aspen Institute: when Treasury yields surge due to concerns about fiscal deficits, policymakers often characterize it as a "market failure" and intervene. This approach effectively masks the real risk signals, silencing the warnings of debt unsustainability that should be conveyed through market volatility. Faced with the challenge of persistently high long-term yields, Bessant's toolbox is far from exhausted. Besides repurchase agreements, the Treasury can also adjust the maturity structure of its bond issuance. Molly Brooks, U.S. interest rate strategist at TD Securities, predicts that the Treasury is likely to reduce the size of its long-term Treasury auctions next. Padhraic Garvey, Global Head of Interest Rates and Debt Strategy at ING, described this "unconventional repurchase" as the Treasury's "bazooka," whose impact on the market, once fully unleashed, would be no less than that of monetary policy. However, the market consensus is that no matter how Bessant maneuvers the debt structure, or how Warsh adheres to market principles, they cannot bypass the "elephant in the room": the massive fiscal deficit. Garvey emphasized that if Washington does not take concrete action on fiscal contraction, such as raising taxes or cutting spending, simply optimizing market mechanisms cannot cure the deep-seated debt problem. This Friday, Warsh will speak in Jackson Hole. Investors are eager to hear confirmation between the lines: facing a fractured Federal Reserve and a relentlessly pressing Treasury, can this chairman, who controls the "monetary tap," withstand political pressure and defend the last line of defense for market pricing?