Scott Bessent warned the bond market ‘has taken down more governments than howitzers’: That theory may give the Fed’s Warsh room to breathe this week

Wall Street analysts are anticipating something of a standoff between the Federal Reserve and the White House this week, with expectations that the Federal Open Market Committee (FOMC) meeting (concluding Wednesday) will result in a hike in the base rate. This would be precisely the opposite of what President Trump wants to see in monetary policy. The White House has lobbied (to an extreme degree) for a loosening of financial conditions.But everyone from the White House to Wall Street to the central bank will be closely watching the flexing of the bond market’s macroeconomic muscle—and even President Trump has been warned against testing its patience.

The September FOMC meeting comes at a time when the Fed’s dual mandate of maximum employment and price stability may warrant action. The latest jobs report came in stronger than expected, while inflation remains stubbornly above the central bank’s 2% target.

And while the Fed could be implored to “look through” inflation because it is driven by a supply-side shock in oil prices, doing so could call into question its credibility if it is seen as shying away from action.

Indeed, following the conclusion of the June FOMC meeting this........

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