Is the Treasury’s Issuance Strategy a Stealth Bailout?

After once criticising former Treasury Secretary Janet Yellen’s strategy of increasing the Treasury’s share of short-term debt issuance, Scott Bessent has decided to continue the same strategy.

It’s part of the Trump administration’s bid to keep long-term interest rates down. But by using fiscal tools to provide low-cost liquidity to financial markets, it’s a bailout by another name to pump up struggling markets without literally pumping cash into the system directly. Now the Fed has finally stopped twiddling its thumbs about lowering rates, laying out a rate-cutting cycle for the rest of the year as the economy sputters and inflation roars.

In the post-Yellen Treasury, what has emerged is not so much a policy shift as a policy echo, with all the risks that entails. The policy of increasing issuance of short‑term Treasury debt — bills maturing within a year — is meant to avoid putting upward pressure on long‑term yields and prevent mortgage rates and borrowing costs for consumers and corporations from spiking. It allowed flexibility in budget funding, especially in a post‑pandemic era with large deficits and inflation (which, according to Trump, doesn’t exist).

Criticising Yellen, Bessent warned that favoring bills over notes and longer‑term bonds undermined efforts to control inflation. But with Trump declaring victory against inflation, Bessent is apparently no longer concerned. The only problem is that inflation is far from finished. In fact, it’s only getting started.