The US Treasury’s debt-issuance polices have become a powerful form of policy easing. By shortening its issuance profile to reduce long-term interest rates, the Treasury has delivered economic stimulus equivalent to a one-point cut to the Fed’s policy rate, impeding the central bank’s efforts to control inflation.
The US Federal Reserve has moved mountains to control inflation, which in July fell below 3% for the first time since 2021. Unfortunately, the Fed finds itself working at cross purposes with the US Treasury, whose debt-issuance strategy has been providing backdoor interest-rate cuts, keeping inflation above the Fed’s target range.
By shortening its issuance profile to reduce long-term interest rates, the Treasury has delivered economic stimulus equivalent to a one-point cut in the Fed’s policy rate. Moreover, forward guidance in the Treasury’s latest quarterly refunding announcement indicates that this backdoor quantitative easing (QE) will continue to frustrate the Fed’s own efforts and compromise its functions.
Typically, the Treasury aims for 15-20% of outstanding debt to be in short-term bills, with the rest in intermediate- and long-term debt, called coupons. But this share has risen and remains well above any reasonable threshold: as much as 70% of new debt raised over the last year came from short-term bills, pushing the total well above 20%.
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Stephen Miran is an adjunct fellow at the Manhattan Institute, co-founder of asset manager Amberwave Partners, and a former senior adviser for economic policy at the U.S. Treasury, 2020–21. Nouriel Roubini is a senior adviser at Hudson Bay Capital Management LP and Professor Emeritus of Economics at New York University’s Stern School of Business, is Co-Founder of Atlas Capital Team, CEO of Roubini Macro Associates, Co-Founder of TheBoomBust.com, and author of Megathreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them (Little, Brown and Company, 2022).
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