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US Treasury and Fed clash over bond buybacks as yields hit 19‑year high

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US Treasury and Fed clash over bond buybacks as yields hit 19‑year high

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The US Department of the Treasury, led by Scott Bessent, announced plans to launch a buyback program for long‑term Treasury bonds starting September 9, aiming to restrain borrowing costs after yields surged to a 19‑year high. However, as the Financial Times reports, direct interventions by the Treasury could undermine investor confidence and materially complicate the Federal Reserve’s efforts to combat inflation.

The policies of the two financial institutions are effectively pulling in opposite directions. Treasury bond purchases are intended to lower mortgage and lending rates to stimulate business activity. Federal Reserve leadership seeks to cool demand in order to return inflation to the 2% target, and in July three members of the FOMC already voted for a policy rate increase. Moreover, attempts by Bessent to manually adjust sovereign bond prices conflict with the stance of Fed Chair Kevin Warsh, who has urged reliance on market signals and objective macroeconomic data.

Experts point to rising institutional risks. Evercore ISI vice chairman Krishna Guha said market participants and regulators are concerned by the Treasury’s rhetoric, and Harvard professor Jason Furman warned of the danger of fiscal dominance, a situation in which an independent monetary policy is sacrificed to meet the government’s needs to service rising public debt.

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