Dollar Wavers as Fed Hawk Tone Meets Treasury Buybacks

Federal Reserve Chair Kevin Warsh delivered a hawkish message at the Jackson Hole symposium in late August and Treasury Secretary Scott Bessent announced an expanded programme of long-term debt buybacks, actions that moved currency and bond markets in different directions.

At Jackson Hole, Warsh described inflation as “still running above the Fed’s 2% target” and cited July personal consumption expenditures at 3.7%. Following the remarks, the dollar strengthened, gold gave back part of an about 14% gain recorded in August, and fed funds futures increased the probability of a September rate hike to roughly 60% from about 55% before the speech.

The Treasury unveiled an expansion of its buyback programme for 10- to 30-year Treasuries, increasing the size of each operation from $2 billion to $4 billion and scheduling purchases from Sept. 9 through early November. Officials indicated the department could draw on close to $1 trillion in the Treasury General Account if needed to support the programme.

Markets priced the two sets of signals differently. On the day the Treasury expansion was announced, the 10-year yield fell by about six basis points and the 30-year yield dropped roughly nine basis points. Those moves contrasted with the Fed-driven push to keep longer-term yields elevated as a tool to address inflation.

Renewed fighting near the Strait of Hormuz pushed Brent crude toward $95 a barrel, and a separate threat to flows through Bab el-Mandeb raised additional supply concerns. Higher oil prices feed into consumer price indexes that the Fed monitors, tying energy moves to the central bank’s rate decisions.

Currency markets showed increased volatility as traders weighed the Fed’s inflation-focused guidance against the Treasury’s operations to lower certain long-term yields. Both agencies pointed to their respective mandates and operational goals when explaining the policies.