The central bank sets interest rates, but the federal government decides what kind of bonds to sell to the public.
Decisions made by the Treasury get much less attention than those made by the Federal Reserve, but they can be even more consequential for interest rates — and the entire US economy.
A case in point is the current debate over the maturity of the bonds and bills the Treasury sells at auction. An influential report published last month argued that the Treasury is issuing too much short-term debt, undermining the Fed’s efforts to slow down the economy. Then former Treasury Secretary Steve Mnuchin said earlier this month that the Treasury should discontinue the 20-year bond because of lack of demand.
These apparently contradictory pieces of advice illustrate a basic principle and the dilemma that follows: In an ideal world, the Treasury would issue more longer-term debt. In the real world, however, it is not clear bond buyers want it.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
Photo by Douglas Rissing/Getty Images
