Treasury Secretary Scott Bessent's plan to buy long-term bonds and sell short-term bills to push down borrowing costs is raising questions about the Federal Reserve's independence under Chair Kevin Warsh. The move lands as the US national debt has just crossed $40 trillion, adding urgency to warnings that fiscal pressure could start dictating monetary policy.
Treasury Secretary Scott Bessent moved this week to intervene directly in the bond market after 30-year Treasury yields hit a 19-year high. He said the government does not believe the rise was driven by fundamentals, and he announced plans to buy long-term bonds while financing the purchases through short-term T-bill sales — a twist meant to push long-term rates down and short-term rates up. President Donald Trump, meanwhile, repeated his call for the Fed to lower interest rates.
A question mark over Fed independence
Economists say the combination raises doubts about the Fed's credibility under Warsh. Gregory Daco, chief economist at EY-Parthenon, said the episode risks tipping into "fiscal dominance," where the Fed effectively takes its cues from the Treasury to deliver lower long-term rates. Lou Crandall, chief economist at Wrightson ICAP, put it more bluntly: According to MarketWatch: "Suddenly nobody knows what the real message is."
Bessent's remarks also cut against Warsh's own position last month, when the Fed chair welcomed higher rates as doing some of the central bank's inflation-fighting work for it. Warsh, who took over the Fed in May, has otherwise avoided signaling his views on the path of rates. He is due to speak at the Fed's Jackson Hole retreat next Friday, an event markets watch closely for hints of policy shifts.
The debt backdrop
The intervention comes as the national debt topped $40 trillion for the first time on August 18, reaching $40.047 trillion, according to Treasury Department figures cited by Crypto Briefing. Rebecca Patterson, a senior fellow at the Council on Foreign Relations and former chief investment strategist at Bridgewater Associates, told Bloomberg on August 21 that without substantial policy changes, debt-to-GDP ratios could reach 118% or higher within a decade. Patterson and others have flagged the same fiscal-dominance dynamic Daco described, pointing to it as a feature of the 2025-2026 period rather than a future risk.
Not everyone reads Bessent's plan as removing pressure for higher rates. Marco Casiraghi, senior economist at Evercore ISI, said the twist program doesn't rule out a rate hike and would likely weaken the dollar, adding to inflation at the margin. Bessent, pressed on CNBC over whether his moves tie Warsh's hands, said only that the Treasury and the Fed would coordinate on any change to the balance sheet, and declined to elaborate further.
Sources: MarketWatch, Crypto Briefing
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