Hot or not? The economy’s fate rests on Kevin Warsh’s answer to one key question

“I am the house now,” Treasury Secretary Scott Bessent told traders last week, as he defended the administration’s increasingly interventionist approach to the bond market. He added that he had “asymmetric information” about what policymakers would do next and dared investors: “bet against me if you want.”

On Wednesday, Federal Reserve chair Kevin Warsh might effectively take the other side of the bet.It’s been a hot American summer. Oil is hot, hovering around $110 a barrel. Bond yields are hot, too: the 10-year Treasury yield has pushed above 5%, around its highest level since 2007. Credit markets are running hot as well: U.S.-dollar debt issuance to finance AI and data-center development reached $308 billion through July. And all that borrowing is competing with U.S. national debt, which crossed $40 trillion less than a month ago. Stocks, despite a rough few days, are still up roughly 11% this year. Inflation, meanwhile, remains above 3%.

Put all that heat together, and the Federal Reserve is staring down a question it hasn’t seriously confronted in three years: Is the U.S. economy actually overheating? Markets are betting the Fed thinks the answer is at least “maybe.” Traders have priced a quarter-point hike Wednesday with near certainty.

But whether Wednesday amounts to a one-time course correction or the beginning of a new........

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