Janet Yellen Wrecks The American Economy

The Federal Reserve determines US interest rate policy.  However, the Secretary of the Treasury, formerly the chairman of the Federal Reserve, Janet Yellen, determines the issuance of debt in the treasury market.

Last fall, the ten-year treasury bond exceeded 5%, briefly sending a chill through the mortgage industry, where that bond determines mortgage rates.  In a blatantly political move, Treasury Secretary Yellen announced that the amount of debt to be financed would be reduced by $76 billion, sending the bond market into a bull market. ² She didn’t say that she would also emphasize short-term funding on treasury bills and notes to prop up the mortgage industry real estate market and economic numbers to make “Bidenomics” look better.  This blatantly political move has made the short end of the bond market inverted and exacerbated that inversion.  Another consequence is that interest expense on the national debt is now more significant, with rates at 5% or higher.

It seems funny that the treasury secretary’s move came after the debt ceiling agreement.  Knowing that she would not be bumping up against that ceiling through her open market activities let her take free rein with how she deemed fit to pay for the national debt.  This dangerous activity continues today as markets watch how the treasury finances our debt as we go into February 2024.  Once again, it appears that we don’t need to finance as much debt, according to the Treasury Secretary, and of course, all the borrowing will be at the very short end at higher rates with an inverted yield curve.