The US administration is trying to ease pressure on the Fed by using oil, bonds, and the dollar. But Warsh seems to be making things more difficult. Or perhaps he's doing so to project an image of independence.

Following Kevin Warsh's Jackson Hole speech, the market significantly increased the likelihood of an interest rate hike. The 2-year Treasury yield jumped, the dollar strengthened, and USD/JPY rose back above 160. This is exactly the scenario Japan doesn't want to see.

Because as US interest rates rise, the US-Japan interest rate differential widens again, the dollar strengthens, and pressure on the yen increases. Japan has spent approximately $96.5 billion in the last month to stop the yen's weakness. Even the US joined Japan in the yen intervention. Despite this, Warsh's single speech pushed USD/JPY back to 160.

Therefore, if Japan starts selling large amounts of US Treasury bonds from its reserves, it could increase the already existing supply pressure in the long-term Treasury market. Given the US debt exceeding $40 trillion and its high refinancing needs, the last thing Bessent wants is for foreigners (especially Japan) to sell bonds.

So, while Warsh's idea of ​​raising interest rates to fight inflation might be theoretically correct, the side effect would mean a stronger dollar, a weaker yen, and a more stressed global bond market. Therefore, the Fed CANNOT raise interest rates BEFORE THE ELECTIONS! We shouldn't pay attention to the media's nonsense. Of course, the Venezuela news comes into play here.

The Trump administration announced an agreement with Venezuela that would give the US majority control over the development of over 65 billion barrels of proven oil reserves, with private sector participation. Venezuela confirmed the agreement. This means the US will now control 7.1% of the world's oil reserves alone. In other words, the Trump administration wants to bring as much oil to the market as possible. Why?

Because high oil prices → high inflation → a more hawkish Fed → higher interest rates → a stronger dollar → a weaker yen → more currency intervention and more pressure on US long-term bond yields. If you can reverse this chain, the picture changes.

More oil supply → lower energy prices → lower inflationary pressure → less need for the Fed to raise interest rates → easing of bond yields → reduced upward pressure on the dollar.

I think many of the moves made by Bessent and the Trump administration need to be read within this framework. The Treasury's increased long-term bond repurchases, support for the defense of the yen, and now the desire to improve Venezuela's oil supply are not entirely independent developments. One of their common goals is to prevent the uncontrolled tightening of financial conditions.

But the problem here is: Venezuela's 65 billion barrel reserves won't be released to the market tomorrow. Venezuela's heavy oil, its long-neglected infrastructure, and the massive capital investment required mean that a significant increase in production could take years. Therefore, this agreement will not solve the inflation problem at the September Fed meeting.

But if successful, it's very important in the medium and long term. The US could gain more influence over global energy supply while also lowering the geopolitical risk premium on oil prices. The big picture I see is this:

Warsh wants to solve inflation by squeezing demand. The Trump/Bessent camp, on the other hand, is trying to prevent Warsh from having to do this by increasing supply as much as possible and stabilizing financial markets.

The fate of the market in the coming months will largely be determined by the struggle between these two approaches. Because the real question for Nasdaq isn't whether oil is $80 or $90, but where oil and inflation will keep US long-term bond yields.