Bessent and Warsh Address Macro Growth and Fiscal Consolidation; Expectations for a BOJ September Rate Hike Heat Up

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Summary:

Warsh: Economic growth potential may be underestimated; Japan expected to take measures to boost the yen...

【Highlights】

1. Bessent: Government Cannot Change Equilibrium Bond Prices; Will Advance Fiscal Consolidation with Warsh

2. Warsh: Global Economy Enters Investment Surge; Growth Potential May Be Underestimated

3. Japan Expected to Take Measures to Boost Yen, Reinforcing Expectations for a BOJ September Rate Hike

4. Iran Will Tolerates No Acts of Aggression

5. Russian and US Finance Ministers Hold Rare Meeting on G20 Margins to Discuss Bilateral Financial Cooperation

【Details】

Bessent: Government Cannot Change Equilibrium Bond Prices; Will Advance Fiscal Consolidation with Warsh

US Treasury Secretary Scott Bessent stated that he aligned with Federal Reserve Chair Kevin Warsh on bond market issues, noting that the 10-year US Treasury yield has remained largely flat since US President Donald Trump took office. Bessent emphasized that he never claimed to try to alter bond market trends and believes the government cannot change the equilibrium price of bonds, adding that he will not speculate on the Fed’s next moves. He noted that core inflation remains relatively mild, and the Fed traditionally does not raise rates when facing supply shocks.

Bessent also revealed that he has not purchased any bonds himself and is currently working with Budget Director Russell Vought to formulate a fiscal consolidation plan. He suggested that the US could become the world's premier bond market thanks to its bond buyback program, adding that hedge fund managers favor accelerating the process. Addressing investor Stanley Druckenmiller’s recent criticism of the Treasury’s bond buyback policy, Bessent mentioned that he spoke with Druckenmiller after the op-ed was published, remarking, "I think Druckenmiller lost money the day he wrote that editorial." Additionally, Bessent noted that Fitch has reaffirmed the US credit rating.

Warsh: Global Economy Enters Investment Surge; Growth Potential May Be Underestimated

Speaking at the G20 finance ministers and central bank governors meeting, Federal Reserve Chair Kevin Warsh stated that the world is experiencing an investment surge driving economic growth, reversing the previous trend where a lack of investment opportunities channeled surplus savings into low-yielding instruments. In his address at the G20 opening plenary session, Warsh expressed interest in gaining deeper insights into the growth prospects of member economies. He indicated that he is evaluating whether growth rates in the US and other G20 economies could surpass conventional forecasts—such as the Congressional Budget Office's estimate of around 1.8% annually amid sluggish productivity growth.

Furthermore, Warsh asserted that the era of cheap money is over, economic growth is accelerating, and capital is flowing into new projects, which will drive interest rates up rather than down. Speaking to reporters in the Oval Office, President Trump expressed high regard for Fed Chair Warsh, stating he trusts Warsh to do what he must regarding interest rates.

Japan Expected to Take Measures to Boost Yen, Reinforcing Expectations for a BOJ September Rate Hike

According to CNBC, US Treasury Secretary Scott Bessent expressed confidence that the Japanese government and the Bank of Japan (BOJ) will take action to strengthen the yen, signaling a strong likelihood of a BOJ rate hike in September. "I have information that the market doesn't have, and I believe the Japanese government and the Bank of Japan will take steps that will strengthen the yen," Bessent told CNBC during an interview at the G20 meeting. When asked if that implied an interest rate increase, he responded, "I think the market has priced that in right now."

Reuters cited sources indicating that the BOJ could hike rates as early as its September 17–18 meeting and is considering a more aggressive tightening pace following that meeting—moving beyond its current frequency of roughly two hikes per year.

The US and Japan jointly intervened in the yen market last month. Bessent stated earlier that foreign exchange markets are currently pricing in intervention expectations. He also continued to push back against criticism from US Democratic Senator Elizabeth Warren regarding the intervention, arguing that extreme yen volatility could spill over into the US and push domestic interest rates higher.

Iran Will Tolerates No Acts of Aggression

On August 31 local time, the General Staff of the Iranian Armed Forces released a statement declaring that while Iran respects the national sovereignty of its neighbors, it will tolerate no acts of aggression and will deliver a much stronger response to any such actions. The statement noted that despite formal announcements by several regional countries declaring they would not allow aggressive US forces to use their territory to attack Iran, and despite prior warnings from Tehran, US forces continue to use these countries' territory to target certain Iranian military facilities. The statement stressed that US forces have no choice but to withdraw from the region, warning that those facilitating US aggression against Iran should understand that all branches of the Iranian Armed Forces will stand shoulder-to-shoulder to crush and strike any source of aggression.

Russian and US Finance Ministers Hold Rare Meeting on G20 Margins to Discuss Bilateral Financial Cooperation

According to a Russian government statement, Russian Finance Minister Anton Siluanov met with US Treasury Secretary Scott Bessent during the G20 meeting in Asheville, North Carolina. The statement noted that the two officials discussed bilateral financial cooperation as well as cooperation within the G20 framework. This marks Siluanov's first in-person attendance at a G20 meeting since Russian President Vladimir Putin launched military operations against Ukraine in 2022. The talks represent a rare high-level contact between US and Russian economic leadership. Relations between Washington and Moscow remain strained due to the war in Ukraine and sweeping Western sanctions against Russia. Siluanov's presence at the Asheville meeting drew pushback from European officials; German Finance Minister Lars Klingbeil stated that he and several counterparts refused to participate in the traditional official group photo alongside Siluanov.

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