Bruno Bertez,

éditorial du 29 août 2026

brunobertez.com

---

Editorial. Kevin Warsh hawkish! In other words: he is an impostor. He treats as settled a debate that has not even been opened.

Kevin Warsh is a salesman whose function is to facilitate the financing of U.S. deficits and of strategic investment.

He is an agent of the broader campaign to preserve American exceptionalism.

The system survives on ignorance.

Decisions are taken on the basis of obsolete knowledge — a gap that allows the authorities to deceive and to operate in that interval of obscurantism.

Crises are always related to the stage of development of knowledge. That is why they recur, and why we always fight the last crisis, never the one that is coming.

BRUNO BERTEZ — 29 August

On Friday, 28 August 2026, Kevin Warsh, Federal Reserve Chair since May, delivered his first keynote at the Jackson Hole symposium — his 100th day at the head of the Fed.

The official theme was financial innovation and payments. Markets were waiting for only one thing: clarification on inflation and monetary policy.

Warsh told markets what they wanted to hear. He was therefore received favourably.The opposite would have surprised me.Since Bernanke, communication — and its market consequences — has become the priority. Not money. Not credit. Communication.

The reaction was, as expected, positive: markets wanted a slightly more hawkish tone, an atmosphere, a posture. They got it.Perceptions were the target. Warsh and his advisers hit it.

The speech was judged hawkish.Markets raised the odds of a September rate hike. The dollar and short-term yields rose. U.S. equities closed modestly lower.

Warsh immediately discarded traditional forward guidance. He presented his plan as a “hiking map,” not a rate path, and argued for a “quieter” Fed that does not feed market bets.

This is consistent with his earlier remarks. It does not mean much. The proof? He wanted to impose a slightly hawkish reading. He got it. No more explicit forward guidance is required, in the short run, to obtain from markets what one wants. One need only know them and know how to speak to them. The media and the leading commentators then deliver the rest.

On the economy, the tone was rather constructive: Main Street and Wall Street resilient to shocks; a labour market consistent with full employment; healthy consumption.

Some sectors — housing, agriculture — remain under strain, but overall financial conditions do not appear restrictive to him.Credit and loan markets show little evidence of tightening.

Inflation, by contrast, remains the priority. Warsh said recent PCE and CPI prints were “better than expected,” but did not show a meaningful improvement in the underlying trend.

He is clearly walking on eggshells. Or rather: he does not wish to upset the apple cart.

The 2 percent objective, measured by 12-month PCE, remains “firm and fixed.” He is confident that core inflation will move clearly and reasonably quickly toward that objective, but “we have work to do.”

The Fed’s predominant focus must be prices.He also downplayed wage growth as a reliable indicator of future inflation.

He mentioned artificial intelligence as a general-purpose technology that could support productivity, while maintaining that inflation expectations remain anchored… provided they are watched closely.

Of course.Market reaction: no mishap. Indices first slipped during the speech, rebounded at its conclusion, then gave back the gains. At the close:

• Dow Jones: −0.02% at 53,559.99
• S&P 500: −0.25% at 7,711.76
• Nasdaq Composite: −0.52% at 26,402.42

The move remains modest relative to the “fireworks” of some past Jackson Hole meetings.Technology underperformed. Nvidia fell about 4.6% after a strong rebound the previous day. Discretionary and communication services held up better.

In Europe, the FTSE 100 gained 0.3% and the Stoxx 600 about 0.56%.It was in the bond market that the intended “hawkish” reading was clearest. The 2-year yield, highly sensitive to policy expectations, jumped some 11–12 basis points, toward 4.35% — one of the largest daily moves of the year.The 10-year rose 4–5 basis points, around 4.71–4.73%.The 30-year moved less, and even eased slightly according to some sources, modestly flattening the long end of the curve.

Futures revised probabilities: the chance of a 25 bp hike at the 15–16 September meeting rose from about 35% before the speech to 55–58% after.

The dollar followed.The DXY gained about 0.6%, its largest daily rise since mid-June, toward 99.69–99.73. The euro fell about 0.6%, toward $1.158.

Anti-dollar assets reacted as they were meant to react.Gold, bitcoin and other “anti-rate” assets: gold corrected on the order of 2.4% to 3.2%, interrupting August’s rally. Bitcoin lost about 3%, slipping below $78,000 after a peak near $81,000, with long liquidations.

These assets, which had benefited from more accommodative expectations and from talk of possible Treasury buybacks, suffered from the repricing of higher rates and a stronger dollar. Their behaviour fits perfectly the perceptions sought around a pseudo-hawkish communication.

In fact, there was a little something for everyone.Several analysts saw a useful clarification rather than an abrupt pivot. Warsh tightened the economic diagnosis — full employment, inflation still too high, financial conditions not particularly restrictive — which has hawkish implications. He also reaffirmed the 2% PCE anchor, which somewhat reassured those worried about a loss of credibility.

At the same time, he offered no precise reaction function and announced no hike. He even recalled that understanding the economy is not mechanical. Hence a moderate, balanced, differentiated reaction: short rates and the dollar moved; equities merely surrendered the morning’s gains.Some commentators spoke of a speech that “calms a few nerves” while leaving the calendar open. September is not locked in.

An employment report and an inflation print remain to be published before the next meeting.In short,

Jackson Hole 2026 produced neither crash nor rally. Investors responded by lifting rate-hike bets a little and by strengthening the dollar.Reading the reaction table, one can say that the bond market no longer knows which foot to stand on.

The Fed has adopted a “restrictive” stance without any real intention of tightening financial conditions.The prospect of having to finance trillions of dollars of Treasuries and AI-related debt is obviously on every mind. There can be no genuine monetary tightening. That may look intimidating — especially against a backdrop of rising global yields.

The most significant phenomenon is Trump’s reaction. It tells us everything: he expressed no disagreement with Warsh’s speech. Coordination is obvious, at least via the Treasury Secretary. After the 29 July FOMC meeting and press conference, Trump said: “He’s a brilliant man. I know he’d like to see lower interest rates, but he has a board, and it’s a political board, and they want to keep rates high. But we are fighting to keep rates.”

Treasury Secretary Bessent had briefed Trump: “Don’t be surprised, Mr President, everything is on script. Kevin is playing the agreed game. He just has to flash a little firmness so that he does not have to raise rates. Look, the Dow was virtually unchanged today, just below its all-time highs.”

Look more closely and Warsh said nothing. He drew an empty, hollow frame that he can fill as he pleases later. He is committed to nothing. There is nothing revolutionary. The discussion is at the margin. We remain inside financialization, inside inflationism, inside the imaginary.Warsh’s framework lives in the imaginary. The logic remains that of markets — above all financial markets — from which Warsh clearly expects a great deal, including a capacity to signal risk.Warsh at Jackson Hole:
“To conduct economic policy successfully, it is essential to establish a healthy relationship between financial markets and the central bank. The Fed needs market signals that are as clear and as direct as possible — including from internal market indicators, the level and evolution of asset prices across sectors, prices and trading volumes in Treasuries, the dollar exchange rate, the cost and availability of credit, and the prices of a wide range of commodities.These indicators, among others, should inform the Fed’s near-term outlook for activity and inflation through the business cycle. They should also reveal the state of overall financial conditions, as well as the risks and uncertainties associated with the financial cycle.At the same time, market participants must follow real economic information closely. They must draw their own conclusions, form their own expectations for output, employment and inflation, and remain highly attentive to risks.”

How can one claim that markets are capable of performing all these functions of indication, forecasting and pricing of risk — after the succession of crises we have lived through, after QE1, QE2, unlimited QE, “whatever it takes,” the pandemic madness and its disastrous consequences, and decades of regular liquidity support from the Fed and Washington, after the drift of repo and the engineering designed to push back every limit on the production of money, credit and debt?

Everything is done, on the contrary, so that markets are incapable of producing useful information — and so that, when they do, the Treasury Secretary can manipulate them into silence.

Warsh’s analytical framework is bogus. It is advertising.

Judge for yourselves.Warsh:
“Money matters. It is unfashionable, but I am convinced that money plays an important role in monetary policy. We must pay attention to money created by the central bank and to money that comes from the banking and financial systems. Financial innovation and other factors have altered the mechanisms linking the monetary base, the velocity of money and the broader economy. But that is hardly a reason to ignore the ultimate effects of money on financial conditions and prices.”

In short: we are ignorant; we have been overtaken by our own creatures; they have escaped us… but that is no reason not to pretend we still understand something.Warsh claims to reintroduce the notion of “money” into the Fed’s monetary-policy analysis. He is mocking us. We have known, since Friedman’s silences and especially since Greenspan’s remarks, that the authorities no longer know what money is, what counts as money and what does not, what performs the function of money.

That admission comes from Greenspan himself, in 2006. And since then, nothing has been done to advance that understanding. The subject has been evaded. If, because of innovation and practice, one no longer knows what money is, what counts as money, and how to define it, how could one manage it?

For a long time, the money used in the system has no longer been “digital balances on accounts at commercial banks.” Money is everywhere. Currency is everywhere. It is mercury that escapes intellect, definition and understanding.

Money-market fund assets have reached $7.9 trillion, up $3.3 trillion since October 2022. What share of that mass is money, and what share is something else, given its use as leverage or as a base for producing equity purchasing power and other claims?By what channels, by what alchemy, by what magic do monetary effects arise from instruments that were not “money” in the original definitions?

What are the practical monetary roles of repo, money-market funds, leverage, hedge funds, derivatives, basis trades, carry trades?

What is the articulation between, on the one hand, the monetary policy our Kevin claims to manage and, on the other, financial conditions, Wall Street finance, credit bubbles, asset-price inflation, speculative leverage, Treasury deficits and their financing?

Kevin Warsh’s so-called analytical framework is obsolete, and he claims to use it without even questioning it. Which is to say: he is an impostor. He treats as settled a debate that has not even been opened.

For professionals I have developed this question below in a text under EN PRIME.I will return to it.

But the idea advanced above by Warsh — that markets remain “sensitive to risks” — is pure fantasy, bordering on intellectual dishonesty. Markets function as they function precisely on the negation of risk — on a colossal denial.

Kevin Warsh walks past this pink elephant in the room.

One cannot trust someone who falsifies knowledge to that extent.

---

EN PRIME

Repo is not a technical detail. It is the plumbing through which the system manufactures, recycles and disguises liquidity. It is also one of the places where one sees most clearly why Warsh’s framework — “money matters” — is hollow.What a repo isA repurchase agreement is a sale of securities with a promise to repurchase. Economically, it is a secured loan, almost always very short-term, often overnight.Simple scheme:

• A, who needs cash, sells a Treasury to B.
• A undertakes to buy it back the next day at a slightly higher price.
• The price difference is the repo rate.
• The security serves as collateral.

From A’s standpoint, it is borrowing. From B’s standpoint, it is a near-money placement.The security does not “disappear”: it circulates, it can be reused (rehypothecation), it serves as the base for other operations. That is already where the definition of money blurs.The cash received is not a classic bank deposit. The pledged security is no longer simply an asset held. What has been produced is a temporary, renewable drawing right, backed by government collateral.Two meanings of “repo” that must not be confused

1. Central-bank repo.
   The Fed (via the New York Desk) buys securities with an agreement to resell: it adds reserves. In reverse repo (RRP), it sells securities with an agreement to repurchase: it drains reserves.

Today the Fed mainly uses:

• the Standing Repo Facility (SRF): a rate ceiling, a backstop against a funding squeeze;
• the ON RRP: a rate floor, a parking facility for money-market funds and other non-bank counterparties.

At end-August 2026, the ON RRP is near zero (a few hundred million, versus a peak on the order of $2.5 trillion). SOFR volume, by contrast, remains enormous: around $2.8–2.9 trillion per day.Translation: the Fed is no longer the great parking lot. The private market has replaced it. Liquidity has not disappeared; it has changed pipes.

2. Market repo.

This is where the essential action takes place. Banks, primary dealers, hedge funds, money-market funds and pension funds meet there. SOFR is not a “bank” rate in the narrow sense: it is the rate on overnight secured funding against Treasuries.The unsecured fed funds market itself runs around $110–220 billion. The order of magnitude says everything: the true U.S. money market is no longer the unsecured interbank market.It is repo.Why repo is near-moneyThis is the crux of the critique above. Classic monetary aggregates (M1, M2, the monetary base) do not properly capture:

• overnight positions rolled every day;
• money-market fund shares (nearly $8 trillion) that lend in repo;
• reused collateral;
• the basis trade and other leverage strategies.

A money-market fund that places 100 in reverse repo against a Treasury does not simply “hold” a security. It holds a renewable overnight claim treated as cash. The hedge fund on the other side has transformed a Treasury into purchasing power, with a haircut often very low, sometimes zero on part of the uncleared market.Money is no longer only “what sits on a commercial-bank account.” It is what circulates as cash, what serves as a base for leverage, what can be monetized in a few hours.Repo is the alchemy: a government security becomes cash; cash becomes a security again; the same security finances several positions.Greenspan admitted it in 2006, and I have written several pieces on it: the authorities no longer know clearly what money is. Nothing has really been settled since. Facilities, floors, ceilings and “sponsored clearing” have merely been added.The actual chain: MMF, dealer, hedge fundThe typical circuit today is not “the Fed lends to banks that lend to the economy.”It is rather:

1. Firms and households place cash in money-market funds.
2. MMFs lend that cash in repo (often via FICC sponsored repo) against Treasuries.
3. Dealers pass that funding on to hedge funds.
4. Hedge funds buy cash Treasuries, short futures (cash-futures basis), or trade swap spreads.
5. They repo the securities to finance the position. The cycle restarts.

At end-2025, hedge funds’ net Treasury repo borrowing was estimated around $1.8 trillion. The basis trade has been cited at levels on the order of $2.4 trillion. Bank–hedge fund exposure via repo and prime brokerage has been put around $4.5 trillion.This is not plumbing trivia. It is the mechanism by which the massive supply of Treasuries (deficits plus AI-related and other needs) finds a buyer without long rates exploding.The marginal buyer is not a long-term investor. It is one-day leverage.Hence the paradox pointed out in the Warsh piece: the Fed can speak of a “restrictive stance” without truly tightening financial conditions. Private repo continues to feed the system. The “not particularly restrictive” conditions Warsh describes are not a cyclical mystery. They are the product of this machine.What repo does to monetary policyRepo has three official functions:

• control short rates (ON RRP floor, SRF ceiling);
• ensure settlement and the functioning of the Treasury market;
• serve as a safety valve in stress (September 2019, March 2020).

It has three real, less avowable functions:

• finance enormous speculative positions on a daily basis;
• transform public debt into seemingly unlimited monetary collateral;
• render unreadable the distinction between monetary policy, debt policy and financial-stability policy.

When Warsh says one must look at “money created by the central bank and money that comes from the banking and financial systems,” he names the problem without treating it.Repo is precisely that second tier. But to measure it, define it and constrain it is to attack Treasury financing, the basis trade, MMFs and the dealer model.No one at Jackson Hole does so.The move to central clearing (cash Treasuries by end-2026, repo by mid-2027 under the SEC rule) changes the form, not the nature. Bilateral counterparty risk is reduced. Risk is concentrated on a CCP. Neither leverage, nor overnight funding, nor collateral reuse is abolished.Structural fragilitiesThree points recur in work by the FSB, the Dallas Fed and the BIS:

1. Overnight dependence. Roughly half of repo activity refinances every day. The market “works” as long as everyone rolls. The day rolling stops, collateral must be sold.
2. Opaque leverage. Low haircuts, netting, cross-margining, multi-prime brokers: no one has the single ledger of a fund’s leverage.
3. Contagion into the Treasury market. If hedge funds unwind the basis, they sell the cash bond. The market supposed to be the safest in the world becomes the site of chain liquidation. We saw it in March 2020. The pattern has not disappeared; it has grown.

Markets are not “sensitive to risks” in Warsh’s sense. They function by denying rollover risk, because fifteen years of experience have taught them that the Fed and the Treasury will intervene if the pipe clogs. Risk, as I never cease to recall and explain, has been externalized. It is no longer the markets’ business; it is the authorities’ business — that is, the cursed Fed–Treasury couple.That is the denial I refer to in the main text: repo is the institutionalization of that denial.The link to Greenspan’s “we no longer know what money is.”The concrete question of the text above: what share of the $7.9 trillion in MMFs is money?The share that sits in overnight repo against Treasuries is operationally money: it serves as cash, it is treated as cash, it finances leverage. It does not enter M2 cleanly as a bank deposit. It is not the monetary base. It is not “nothing” either.The same holds for dealer–hedge fund repo. It is not credit to the real economy. It is the production of financial purchasing power. Monetary effects exist — asset prices, financial conditions, the Treasury’s capacity to issue — without the instrument being “money” in Warsh’s textbooks.Hence the imposture of the framework: the word “money” is reintroduced as one reintroduces a relic in a glass case. The debate on the channels (repo, MMFs, derivatives, basis, carry) is not reopened. What has not even been formulated is treated as settled.In one sentenceBank and market repo is not an accessory to monetary policy. It is the place where public debt, money-market-fund cash and speculative-fund leverage become interchangeable overnight.That is why a “slightly hawkish” speech can move the 2-year and the dollar without changing the machine at all.The machine itself does not listen to Jackson Hole.One day it will listen — to see whether “the rollover goes through.”