The Fed Should Stay Out of the Fight for T-Bills
After QT, the Fed will think about how it defines a "neutral" portfolio
I’ve written previously here on the financial stability justification for the Treasury to shorten the duration of its debt issuance:
Treasury Secretary nominee Scott Bessent has suggested, however, that he will take the opposite tack — which potentially sets up an even greater relative scarcity of bills (and surfeit of duration).
Taking that as given, it is even more incumbent upon the Fed to not also be chasing the limited supply of bills. Its balance sheet “normalization” should be neutral to the Treasury’s duration profile, not aim to recapture its pre-GFC model of being focused on bills.
Or so I argue in a new piece over at the Official Monetary and Financial Institutions Forum (OMFIF): The Fed Should Stay Out of the Fight for T-Bills (free to read)
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