Federal Reserve Chair Kevin Warsh delivers his first Jackson Hole keynote on Friday at 10 a.m. ET. It is his first major set-piece speech since taking office in May, and one that has generated plenty of anticipation in the crypto community.
“At 10:00 AM ET, Kevin Warsh gives his first-ever Jackson Hole speech. Huge volatility ahead,” one popular crypto-related X handle posted early Monday.
That framing is fair given what is at stake: whether the Fed will be willing, if necessary, to support the U.S. Treasury’s $4 billion bond-buyback plan to help contain longer-dated Treasury yields, the benchmark for borrowing costs across the economy.
On Aug. 19, Treasury Secretary Scott Bessent said the government would at least double its buybacks of longer-dated Treasury notes, raising each operation from $2 billion to at least $4 billion beginning Sept. 9 through Nov. 4. The announcement came as the 30-year yield hovered at its highest level since 2007 and posed a challenge to both fiscal management and valuations of risk assets.
As such, markets took it as a sign of an official bid to cap long-term borrowing costs – one that may eventually see the Fed step in and buy as many bonds as required to hold yields down, a form of yield-curve control.
Hard assets that benefit from financial repression and a deluge of fiat liquidity quickly rallied. Bitcoin and gold surged, with bitcoin rising from $64,000 to $80,000 in a week. Treasury’s program is not QE, meaning it does not add fresh liquidity to markets, and the size is small compared with the $40 trillion federal debt. So unless the Fed joins in, buying bonds itself and injecting liquidity, a sustained decline in yields looks unlikely.
“The market senses a slippery slope towards fiscal dominance and a possible loss in Fed independence. The assumption here is that for the Treasury to be successful in keeping yields down, it will need to significantly increase the size of the buybacks. That might require the Fed to become complicit in this operation twist, which takes us down the debasement path,” Jurrien Timmer, Fidelity’s director of global macro, said.
That assumption is what Warsh’s speech will test.
If Friday’s speech undercuts that assumption, the bullish momentum in bitcoin and gold could weaken. Language that casts the buybacks as routine liquidity work, stresses monetary policy independence, and rules out Fed participation would could push Treasury yields and the dollar higher and bitcoin and gold lower.
By contrast, words that signal implicit acquiescence to the Treasury or that leave room for potential coordination between the Treasury and the Fed would likely validate expectations of a full-blown Fed intervention, adding to the bullish momentum in bitcoin and gold.
In essence, the speech doesn’t need to signal where interest rates are likely to be to move these two assets. It only needs to answer whether the Fed will stand behind Treasury’s attempt to manage the longer duration yields, or stand apart from it. Which side Warsh leans toward remains to be seen.
Warsh has so far preferred little verbal intervention and almost no forward guidance, leaving markets to set prices on their own. On that record, the odds of an outright endorsement of Treasury’s buyback program look slim.