26 July 2024

How U.S. Treasury Is Fighting The Fed | Nouriel Roubini & Stephen Miran ...

The paper echoed a line of attack that several Republican politicians have recently leveled at Yellen.

It highlights a move by the Treasury in November to temper a ramp-up in issuance of longer-term securities, relying instead relatively more on short-dated bills.

They argue that this was done to hold down long-term borrowing costs, aiding the economy in the run-up to the November election.

‘Dr. Doom’ Nouriel Roubini accused the Treasury Dept. of ‘usurping’ the Fed—Janet Yellen is having none of it

BYChristopher Condon and Bloomberg

July 26, 2024 at 1:28 PM PDT

Fortune

an hour ago

Janet Yellen rejects Nouriel Roubini claim Treasury Dept. is 'usurping' Fed | Fortune

Nouriel Roubini (@Nouriel) · X

X (Twitter)

https://twitter.com/Nouriel

We expect that ATI, if and when it is unwound, will have a temporary (2-3 year long) contractionary effect on the economy equivalent to 200bps of hikes in the Funds rate, before settling into a permanent 120bps hike's worth of restriction. www.hudsonbaycapital.co…

Posted on X · 21 hours ago

One critique of QE is that it eroded the fence between monetary and fiscal policy. It turns out that if the Fed can cross this barrier, Treasury can as well. Activist Treasury Issuance (ATI) works through similar channels as Fed QE. QE increases the demand of long term bonds…

Posted on X · 21 hours ago

Summary of my new paper with @SteveMiran : changes to Treasury's issuance policies have provided similar economic stimulus as a 1% cut in the Fed Funds rate or a 25bps fall in long rates, usurping core functions of monetary policy and hampering the Fed's efforts to restrain…

Posted on X · 21 hours ago

To read "ATI: Activist Treasury Issuance and the tug-of-war over monetary policy," a new paper by @SteveMiran and myself please visit here: www.hudsonbaycapital.co…

US Treasury Secretary Janet Yellen firmly rejected an accusation from the economist Nouriel Roubini that her department has manipulated the issuance of Treasury securities in a way that lowers real borrowing costs across the economy.

In an interview with Bloomberg News, Yellen said Roubini’s argument, laid out in a paper posted Friday, “suggests a strategy that is intended to ease financial conditions, and I can assure you 100% that there is no such strategy. We have never, ever discussed anything of the sort.”

The paper echoed a line of attack that several Republican politicians have recently leveled at Yellen. It highlights a move by the Treasury in November to temper a ramp-up in issuance of longer-term securities, relying instead relatively more on short-dated bills.

They argue that this was done to hold down long-term borrowing costs, aiding the economy in the run-up to the November election.

That argument hasn’t had traction among bond dealers and strategists, and the Treasury official who oversees debt issuance, Joshua Frost, highlighted this month that the department’s actions were within the scope of market participants’ expectations.

Roubini and his co-author Stephen Miran, who served in the Treasury under President Donald Trump, estimated that the Treasury’s move last fall lowered 10-year Treasury yields by a quarter of a percentage point — roughly equivalent to the impact of a full percentage point reduction in the Federal Reserve’s benchmark rate.
“Treasury is dynamically managing financial conditions and through them, the economy, usurping core functions of the Federal Reserve,” Miran and Roubini wrote.

Sole 24 Ore plus

16 hours ago

Roubini spiega come «il Tesoro Usa sta manipolando la curva dei tassi» - 24+

Ten-year Treasury notes are a benchmark for many other obligations, including mortgage rates, amplifying their economic impact.

Separately, a senior Treasury official criticized the Roubini paper on several levels, including factual mistakes about the volume of Treasury bill issuance over the last year.

The official, who declined to be identified, said the calculation of how much issuance was shifted out of coupon-bearing securities to bills was incorrect in one respect, and misleading in another.

The number provided in the paper, the official said, is based not on actual issuance but on outdated predictions from the Treasury Borrowing Advisory Committee — an outside panel of market participants that counsels the Treasury. It also left out the second quarter of this calendar year, when tax revenue allowed the Treasury to pay down bills by about $300 billion.

Frost, the Treasury’s assistant secretary for financial markets, in a detailed speech this month stressed that the department issues debt in a “regular and predictable fashion as part of our strategy to borrow at the lowest cost over time.”

Frost also said the autumn slowdown in added issuance of 10-, 20- and 30-year securities amounted to roughly a 1% change.

Yellen, speaking in an interview on the sidelines of a gathering of Group of 20 finance chiefs in Rio de Janeiro, said Frost’s speech offered the best explanation for the department’s approach.

“My own experience with Treasury policy and debt issuance fully accords with the principles of regular and predictable that he outlines there,” she said.