My question to Barkin afterwards Q: What do you think monetary policy is trying to accomplish right now? Because you hear different stories. One is, real rates are falling, so you need to raise the nominal rates just to stand still. Another would be taking back last year's insurance because now you have a different risk you want to insure against. Another would be you want to actually slow down the labor market and the economy if these [rate] insensitive sectors are going to keep prices rising. Not to ask a leading question, but what do you think monetary policy ought to be accomplishing with tighter policy now? Barkin: I've often said I think monetary policy works both physically and—if I could use the word—metaphysically. The physical part of it is if you raise rates that quiets parts of the economy, in particular interest sensitive parts of the economy first and that reduces price pressure in those segments and that flows through to inflation. It takes some time to get there as long and variable lags, all that stuff. The part I was calling metaphysical is more the expectation channel and the notion that the Fed will respond when inflation lingers, I think, sends signals to actors in the economy, price-setters throughout the economy, that inflation going forward is going to come down and that then influences and I think could influence relatively quickly their wage and price decisions going forward. I often tell the story of the CFO and the head of sales arguing what price we're going to put in next year's budget. And if they're doing that this October, which I presume they are, I hope they're hearing sounds that says the Fed is focused on inflation [and] is doing something about it. I think that might well impact how they think about price setting going forward.

Debate on cause of rise of the long term bond yields: Two models, both produced by economists affiliated with the Fed: 1) ACM (it’s all real yields/growth/ppl expect Fed to hike) 2) KM (it is term premium) Warsh picked the former interpretation. As did the rest of the FOMC, implied in the SEP More than a year ago, debate on whether tariffs would generate persistent vs transitory inflation: Two models also from Fed affiliated economists: 1) tariffs generate persistent inflation (new research) 2) tariffs deflationary in the long term, and initially a one off price change (from a long standing structural model that proved to be correct in 2018) The FOMC adopted the first interpretation, until facts showed otherwise today. Tell me that economics is not a dismal science. At least the Fed should debate about this, disagree. That is not what the SEP show. Group think is rearing its ugly head inside the Fed again.

Warsh is handing markets a gift if you are willing to listen. You can be mad that the Fed isn't handing out free money or manipulating the yield curve or stoking risk assets anymore, but Warsh is firmly telling everyone to adjust. The Fed is not your nanny anymore. My assumption is that the people panicking about the recent yield increase have never seen a normal bond market or are misremembering pre-manipulation, which is reasonable since we had declining yields since the 80's. Debt/deficit/interest will matter but bond markets work glacially until they finally break. I'd be more worried about a LONG list of other countries first, e.g. Japan is managing a currency and debt crisis, but yields need to go way up and currency much weaker to actually normalize ~250% debt to GDP. Let's calm down about a 5.2% 30-year, BTW the 30-yr is economically unimportant outside of corporate borrowing and funding government. All eyes on the 10-year, since it rules a massive part of our economy. Back to that 40 year bull market in bonds, and if you believe my assumptions that glacier looks to be changing course (10-yr CMT trend attached). It's not fun if you hold risk assets or duration right now I get it. Adjust your risk with the change in Fed profile. From Warsh, I am assuming the Fed is not here to bail markets out everytime they hiccup, like under Powell and Yellen. I am assuming the Fed is not going to intervene with it's balance sheet to manipulate the yield curve, outside of crisis. These signals are telling you how to adjust. Free money days are over and with normalization of bond markets so are manufactured low yields. When I started on the trading desk the 30-year was over 6%, 6.35% to be exact, and I thought that was SO high. Everyone needs to find a bond trader that worked in the 80's and early 90's they will change your perspective on volatility and risk.

Wrecked sleep last night. Cafe mistakenly gave me fully caffeinated coffee versus decaf. Cancelled my morning dunk training as acute sleep disruption can increase injury risk by 70-130%.

.@ScottTheCowGuy and @ByronAndersonII discuss what Warsh should be focusing on and the bond markets @OfficialRFDTV 🔗cdn.jwplayer.com/previews/2M…

*TREASURY COULD USE GENERAL ACCOUNT TO FUND BOND BUYBACK: CNBC

If you believe that Bessent's actions yesterday are the inevitable signal harkening imminent American collapse...and that understanding this puts you ahead of the curve...I'd like to point out that curve goes back several decades...

Treasury doubles debt buybacks as Bessent moves to steady bond market cnbc.com/2026/08/19/treasury…

When Powell used last year's Jackson Hole to signal an easing cycle - 75 bps in cuts - core inflation was 3.1% y/y vs 2.6% y/y now. There wasn't any hand-wringing about Fed credibility back then, but now everyone's worried. Seems biased to say the least... robinjbrooks.substack.com/p/…