Trump's Slipping Polls and Bond Market Turmoil: Is Warsh Gaining Independence?

The tension between Federal Reserve Chair Warsh and the White House is evolving in an unexpected way. As Trump's approval ratings come under pressure and Treasury yields climb, Warsh's policy leverage is quietly increasing, and the likelihood that he resists pressure to cut rates at Wednesday's FOMC meeting should not be underestimated.

Last week, as the 10-year Treasury yield approached 5%, Treasury Secretary Bessent launched a $6 billion Treasury buyback program in an attempt to push yields lower, but it failed. Meanwhile, Warsh delivered a speech at Jackson Hole, pledging to firmly combat inflation, earning cautious recognition from some former critics and shifting market perceptions of his policy stance.

Data from prediction platform Polymarket shows that the market's implied probability of a rate hike at this meeting has exceeded 50%. Nevertheless, according to analysis by Financial Times columnist Gillian Tett, the Fed may choose to act only after the midterm elections. But the more noteworthy signal is that the political calculus surrounding the Fed has changed, and Warsh has demonstrated strategic capability and policy space earlier than the market expected.

Powell's Decision to Stay on the Board Unexpectedly Provides Cover for Warsh

In May of this year, Powell stepped down as Fed Chair but chose to remain on the Board of Governors in an unusual move, telling friends he would stay until Trump clearly abandoned threats of prosecution.

This arrangement led many observers to believe Warsh would feel deeply uncomfortable, but the opposite has occurred. Tett's analysis suggests that Powell, who long served as a target for Trump's economic frustrations, remaining on the board means pro-Trump factions are still in the minority. This objectively gives Warsh a political buffer—attributing any policy direction that displeases the president to the collective decision of the board. Warsh himself has described the Fed's current operations as "internal family debates."

Rising Yields: Pressure for Warsh, but Also a Tool

Rising Treasury yields are a thorny problem for Bessent—he needs to issue over $10 trillion in U.S. debt over the next year, an immense burden. Last week's $6 billion buyback operation failed to achieve its goal, further highlighting his difficult position.

However, Gavekal Research noted in a client report this week, "Unlike Bessent, Warsh does not seem troubled by rising yields." The reason: higher yields themselves help suppress inflation, tightening financial conditions without the need for rate hikes, which aligns with Warsh's Jackson Hole message that "the era of secular stagnation is over."

At the same time, the Fed is currently reducing its holdings of long-term Treasuries at a pace of about $19 billion per month, exceeding the size of Bessent's buyback program. Gavekal specifically pointed out that Warsh has commissioned an external committee to make recommendations on balance sheet policy, with a report due by year-end, providing another tool path for tightening financial conditions.

The Druckenmiller Connection: Warsh and Bessent Won't Publicly Break

The policy differences between Warsh and Bessent have raised market concerns about a public clash between the two. Recently, Stanley Druckenmiller wrote a column in The Wall Street Journal urging Bessent to "let the bond market speak" and stop intervening, further reinforcing this narrative.

But a key link is often overlooked: both Warsh and Bessent come from the Druckenmiller school. The two have supported each other in seeking their current positions and share a common ideological foundation in responding to financial crises. Analysts believe that regardless of how large their differences on policy timing may be, they will work together to prevent systemic financial risks. As Bessent suffers repeated setbacks in bond market management, Warsh's relative strength is thereby highlighted.

Trump's Polls Under Pressure, Political Intervention Space Narrows

Trump's political situation is also quietly changing. Polls show that American voters' dissatisfaction with Trump continues to rise, partly related to his Iran war policy. To boost Republican support in the November midterm elections, Trump proposed that if Republicans win, he would distribute $5,000 dividends to every adult citizen, a move critics describe as a signal of "peak Trump," although this judgment is still premature.

Meanwhile, investors' sensitivity to Trump's policy announcements has clearly declined—the fact that yields rose rather than fell after Bessent announced the Treasury buyback is evidence. This "desensitization" effect objectively gives Warsh greater room for independent expression.

Democratic Senator Elizabeth Warren this spring denounced Warsh as Trump's "yes-man," asserting that his credibility was completely gone. But from the current trajectory, this "yes-man" is biting back. The real test ahead is whether Warsh can hold onto this hard-won independence if persistently rising yields trigger pressure for quantitative easing.