Trump and Kevin Warsh Push for a New Fed-Treasury Power Play in 2026: What It Means for Markets

• Why Does the Fed-Treasury Relationship Matter?
• What’s Trump’s Beef With the Fed?
• Could the Fed Dump Long-Term Bonds?
• Is History About to Repeat Itself?
• What’s Next for Investors?
• FAQs: Fed-Treasury Accord Explained

The U.S. Federal Reserve and Treasury Department might be headed for a historic shake-up. Former President Donald Trump, now back in the WHITE House, and his Fed Chair pick Kevin Warsh are floating the idea of a new accord to redefine their relationship. This isn’t just about interest rates—it’s about who calls the shots. Could this undo the independence the Fed won in 1951? Here’s why Wall Street is watching closely.

Why Does the Fed-Treasury Relationship Matter?

Back in 1942, the Fed was basically the Treasury’s puppet. With World War II raging, the U.S. needed cheap money to fund the effort, so the Fed kept rates artificially low—0.375% on short-term bills and 2.5% on long-term bonds. Inflation exploded afterward, leading to the 1951 Accord, which freed the Fed from Treasury control. Now, TRUMP and Warsh are hinting at a modern reboot. The question is: Will this be a minor tweak or a full-blown power shift?

What’s Trump’s Beef With the Fed?

Trump has never been shy about his Fed frustrations. Last year, he openly criticized the central bank for “not caring” about how its policies jack up government debt costs. With interest payments nearing $1 trillion annually (half the deficit!), his push for tighter coordination isn’t surprising. Warsh’s solution? A written agreement outlining the Fed’s balance sheet size and Treasury’s debt issuance plans. Sounds dry, but it could flip the $6 trillion securities market on its head.

Could the Fed Dump Long-Term Bonds?

Deutsche Bank analysts think a Warsh-led Fed might go all-in on short-term Treasury bills—ramping up holdings from 5% to 55% over five to seven years. The catch? The Treasury WOULD need to issue way more bills. While this could ease borrowing costs now, it’s a risky bet. Short-term debt rolls over faster, meaning if rates spike, so does the government’s interest tab. One BTCC analyst noted, “This isn’t just a Fed story—it’s a volatility time bomb for markets.”

Is History About to Repeat Itself?

The 1951 Accord was meant to stop the Fed from being a Treasury piggybank. But with Trump’s focus on debt costs and Warsh’s Wall Street ties, critics worry the new “accord” might blur those lines again. As one economist put it, “The Fed’s job is to fight inflation, not finance the government.” Still, with the U.S. debt mountain growing, some argue coordination isn’t optional—it’s inevitable.

What’s Next for Investors?

Markets hate uncertainty, and this proposal is dripping with it. A Fed-Treasury pact could rewrite the rules for bond issuance, rate hikes, and even the dollar’s strength. For now, traders are hedging bets—long-term bond yields have crept up, while short-term bills are seeing weird demand spikes. As the BTCC team warns, “Watch the Treasury’s next debt auction. That’ll signal if this is real or just talk.”

FAQs: Fed-Treasury Accord Explained

What was the 1951 Fed-Treasury Accord?

The 1951 Accord ended the Fed’s obligation to peg rates for Treasury debt, restoring its independence after WWII. It marked the start of modern monetary policy.

Why does Kevin Warsh want short-term debt?

Warsh argues short-term bills better reflect market conditions. Critics say it’s a short-term fix with long-term risks.

Could this hurt the Fed’s credibility?

Potentially. If markets see the Fed as taking orders from the Treasury, inflation expectations could spiral.