The Fed's Dove Says Demand, Treasury Says Oil

Chicago Fed President Goolsbee, Sep 21: inflation data earlier this year looked like supply shocks waning — now some of it is coming from demand. District contacts are relaying concerns that sound like traditional demand overheating. Services inflation is not tied to the oil shock but is a product of strong demand. The Fed is now more in the action scenario. He is not viewing hikes as taking back the 2025 cuts, and does not think long rates reflect a loss of confidence in the Fed. Treasury Secretary Bessent, the same morning on CNBC: no uptick in core inflation — it's all headline. "Will see if this is a supply shock on the energy side." Once on the other side of the Iran conflict, rates should drop. Yields had been moving away from equilibrium, and since the buyback expansion 30-year yields are not up by much.

The parent logged the Chair naming the capex surge as one of three reasons yields have risen. Schmid and Kashkari have since echoed the demand framing, and now Goolsbee has joined them — the same voice who said in August that the Fed and Treasury are not at cross purposes. The Fed's public read is close to unanimous: this is demand, and services will not fix themselves. Treasury's read is the opposite: a temporary energy supply shock that resolves with the war, with buybacks holding the long end in the meantime. A supply shock is something you look through. Demand is something you tighten into. The two institutions are acting on different answers on the same curve. Goolsbee drew one line worth keeping: he accepts the demand diagnosis but rejects the idea that long rates reflect fiscal doubt. The dove concedes the inflation argument, not the bond-market one. On Bessent's claim: the 30-year closed at 5.296% on Sep 18 against about 5.21% in late August — roughly 8bp on closes — while the September 30-year auction cleared at 5.308%.