Economists Warn Bessent Bond Buybacks Could Backfire on Fed
Top economists are sounding the alarm over Treasury Secretary Scott Bessent's expanded bond buybacks, which they claim could backfire on the Federal Reserve. Wharton Professor Jeremy Siegel has dubbed the yield curve manipulation the 'Bessent twist,' while veteran strategist Ed Yardeni warns that the intervention will 'muck up things' for the Fed's upcoming policy decisions.
Siegel expressed strong reservations about Bessent's strategy to alter the relative supply of short- and long-term securities, calling it a bad idea. He cautioned that attempting to manage this market could ultimately damage credibility if the intervention fails. Siegel warned that long-term rates reflect vital expectations for inflation, economic growth, deficits, and risk premiums.
Yardeni echoed these operational concerns, emphasizing that recent yield spikes do not necessarily require intervention. He argued that a 10-year bond yield between 4% and 5% is simply 'back to normal' and a sign of a healthy economy that can handle current borrowing levels from both the government and technology hyperscalers.
However, Yardeni notes that the Treasury's deployment of its extensive toolkit to suppress yields creates a severe headache for monetary policymakers. 'It's going to muck up things for Kevin Warsh because Kevin Warsh is looking for signals from the bond market,' Yardeni explained. 'And here the Treasury is using its toolkit to send a different message.'