$40 Trillion Debt Burden Throws Fed Interest-Rate Hike into Question

US Treasury Secretary Scott Bessent's proposal to lower borrowing costs has put the Federal Reserve's interest-rate hike in focus, amidst a growing national debt burden. The US national debt recently crossed $40 trillion, according to Treasury data.

This milestone highlights the cost of financing Washington's borrowing needs at a time when long-term Treasury yields remain elevated. Former Philadelphia Federal Reserve President Patrick Harker warned that the central bank cannot simply offer vague assurances about the national debt and inflation.

Bessent has attempted to put a floor under the long-end Treasury market by expanding the government's bond-buyback program, but the relief was short-lived as Treasury yields climbed above 5.3% for the 30-year yield and returned to roughly 4.69% for the 10-year yield.

Reuters reported that Treasury plans to maintain its regular debt-auction schedule even as it expands long-term buybacks, which means higher borrowing costs for Washington. The Fed's dual mandate of price stability and full employment makes Bessent's response to the $40 trillion debt burden a challenging task.