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Treasury to buy more long bonds sparks concerns over Fed inflation goals
The Treasury plans to at least double longer-term bond purchases, with investors weighing how Washington yield support could complicate the Fed’s push to bring inflation down toward 2%.
US Treasury secretary Scott Bessent’s decision to ramp up purchases of long-dated government debt is drawing investor concern that fiscal policy could increasingly conflict with the Federal Reserve’s efforts to contain inflation, according to a Financial Times report cited by Hedgeweek.
Bessent surprised markets by saying the Treasury would at least double its purchases of longer-term US government bonds, a move intended to put downward pressure on borrowing costs after yields reached their highest level in almost two decades. Investors highlighted risks that direct yield influence could undermine confidence in the bond market and potentially make the Fed’s inflation-fighting job harder.
The issue has become more 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 issuance tied to investing in artificial intelligence infrastructure.
Investors are now watching Fed chair Kevin Warsh’s remarks at the Kansas City Fed’s annual Jackson Hole conference for clues on how the central bank views the Treasury’s intervention, Hedgeweek reported. The report also notes recent rate-increase momentum, with three Fed members voting for a hike at the July meeting and several regional presidents later indicating they could back a quarter-point increase.