Washington – As 10‑year Treasury yields climbed above 5%, the Trump administration’s Treasury Department intensified its bond‑buyback program in an effort to lower borrowing costs for families and businesses. Treasury Secretary Scott Bessent told a congressional hearing that the move was aimed at aligning market rates with the strong economic outlook, but he attributed the recent spike to broader global factors.
Fed’s stance on market intervention
Federal Reserve Chairman Kevin Warsh reiterated that the central bank will not be called upon to buy government debt in large quantities. Warsh emphasized the Fed’s primary mandate to maintain price stability and warned that direct Treasury purchases would jeopardize the independence established by the 1951 Treasury‑Fed Accord.
“The Fed’s credibility is paramount,” Warsh said, echoing concerns from senior economists that any large‑scale bond buying would expand the Fed’s balance sheet beyond the current $6.7 trillion and undermine its 2 % inflation target.
Administration’s rationale
President Trump’s team argues that a stable bond market supports the nation’s fiscal health and helps keep mortgage rates affordable for American families. The administration points to the recent Fed rate hike to a target range of 3.75 %–4.00 % as evidence that monetary policy remains focused on taming inflation, which should eventually ease longer‑dated yields.
“We are committed to responsible fiscal stewardship while protecting the American worker,” a White House spokesperson said. “Treasury’s buyback actions are a prudent tool to smooth market volatility without compromising the Fed’s independence.”
Market reactions and expert views
BlackRock chief bond manager Rick Rieder, who was reportedly under consideration by President Trump for a Fed leadership role, noted that the Fed’s “unwritten mandate” includes monitoring financial conditions. He argued that any decision on bond purchases must factor in the broader impact on credit costs.
Economists such as Lou Crandall of Wrightson ICAP and former Treasury official Mark Sobel warned that the Treasury’s interventions have already strained its credibility. Both agree that the Fed is unlikely to be drawn into a large‑scale quantitative‑easing program, especially given Warsh’s commitment to a smaller balance sheet.
A Deutsche Bank poll of investors released Monday indicated that while a near‑term rate hike might lift short‑term yields modestly, long‑term yields could rise further if the Fed were to keep rates steady without additional market support.
Historical context
During World War II, the Fed did assist the Treasury in capping borrowing costs, but the practice ended with the 1951 Accord to preserve monetary independence. Reinstating such coordination now would represent a significant policy shift.
New York Fed President John Williams told CNBC that rising yields reflect a robust economy and aggressive technology investment, and he dismissed Treasury’s actions as non‑disruptive to the Fed’s policy formulation.
Outlook
Analysts expect the Fed to complete its two‑day policy meeting without altering its stance on direct Treasury purchases. The administration’s bond‑buyback program will likely continue as a targeted measure to manage market expectations while respecting the constitutional separation of fiscal and monetary authority.
Overall, the Trump administration’s approach aims to balance market stability with the Fed’s independent mandate, reinforcing confidence in both fiscal policy and the nation’s long‑term economic health.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
