Bessent Warns 'Bond Markets Have Toppled More Governments Than Howitzers,' Potentially Giving Warsh 'Breathing Room' This Week

September 14 — U.S. Treasury Secretary Bessent warned that "bond markets have toppled more governments than howitzers ever have," a view that could serve as important support for Fed Chair Warsh as he navigates policy pressure this week.

Markets expect the Fed to hike rates at the September FOMC meeting ending this week, while the Trump administration has been hoping for further easing in financial conditions. Meanwhile, the latest U.S. employment data came in stronger than expected, and inflation remains above the Fed's 2% target, putting pressure on the Fed to continue tightening policy.

Bessent previously said that Trump understands the power of the bond market and believes Warsh will "optimize the policy path" based on inflation and economic growth. The article argues that although the Fed should not cater to the bond market, the White House's emphasis on the bond market's influence could give Warsh greater room for policy maneuver, while also reminding the Trump administration not to excessively pressure the Fed.

Wall Street simultaneously warns that if the Fed continues to stand pat amid elevated inflation and energy price shocks, the bond market could force policymakers to act by pushing up long-term U.S. Treasury yields; if Warsh's policies disappoint the market, it could also trigger questions about his independence and further drive up borrowing costs for the government and the private sector.