Treasury-Fed Balance Sheet Tension

Treasury's upsized buybacks to $4B per operation may conflict with Warsh's goal of shrinking the Fed's balance sheet. A new article (ex-10aa4670) directly ties this to Fed credibility. The bond market is shrugging off buyback support, with yields remaining elevated near 5.3%. El-Erian calls for a Treasury reaction function. Kashkari's dovish comments on yields may reduce pressure on the Fed. The tug-of-war continues ahead of Jackson Hole.