US Treasury secretary Scott Bessent’s decision to ramp up purchases of long-dated government debt is raising concerns among investors that fiscal policy could increasingly conflict with the Federal Reserve’s efforts to contain inflation, according to a report by the Financial Times.
Bessent surprised markets last week by saying the Treasury would at least double its purchases of longer-term US government bonds, a move designed to put downward pressure on borrowing costs after yields climbed to their highest level in almost two decades.
The intervention has drawn criticism from investors who argue that the Treasury risks undermining confidence in the bond market while making the Fed’s inflation-fighting task more difficult.
“I have a very dim view of the Treasury’s rationale,” said Greg Peters, co-chief investment officer at PGIM Credit, describing the strategy as potentially self-defeating. Investors are now looking to Fed chair Kevin Warsh’s speech at the Kansas City Fed’s annual Jackson Hole conference for clues about how the central bank views the Treasury’s intervention.
Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, also questioned the rationale for Treasury intervention, warning that efforts to directly influence yields could raise concerns about Washington’s willingness to interfere in the world’s most important bond market.
The issue is particularly sensitive because US inflation remains above the Fed’s 2% target, with the latest reading at 3.7%. At the same time, long-term Treasury yields have risen amid persistent inflation concerns, expanding government borrowing needs and heavy debt issuance associated with investment in artificial intelligence infrastructure.
Bessent’s strategy is intended to reduce long-term borrowing costs, potentially lowering mortgage rates and supporting economic activity. That objective, however, could run counter to the Fed’s efforts to cool demand if policymakers conclude that higher interest rates are needed to bring inflation under control.
Three Federal Open Market Committee members voted for a rate increase at the Fed’s July meeting, while several other regional Fed presidents have subsequently indicated that they could support a quarter-point increase.
The tension is notable given the relationship between Bessent and Warsh, who are both protégés of billionaire investor Stanley Druckenmiller and are understood to speak regularly. Yet their respective approaches to the Treasury market increasingly appear difficult to reconcile.
Druckenmiller himself criticised the Treasury’s decision, describing plans to increase long-term Treasury buybacks to at least $4bn as a mistake. He argued that the intervention amounted to managing bond prices rather than simply managing market liquidity.
Warsh has previously indicated that higher Treasury yields can reflect economic conditions that warrant tighter monetary policy and said the Fed should avoid interfering with market signals.
There are also growing concerns that political pressure could complicate the Fed’s policy decisions. The Trump administration has an incentive to lower borrowing costs ahead of November’s midterm elections, raising questions about what could happen if Treasury efforts fail to bring yields down.
