Treasury Plans $6 Billion Bond Buyback: What It Could Mean for Inflation and Your Money
On Sept. 10 the U.S. Treasury will buy back $6 billion in government debt, according to CNBC. That is triple the normal number of buybacks the government does and is significantly higher than the Aug. 19 estimate from U.S. Treasury Secretary Scott Bessent who told Americans at that time that the move is meant to help markets run smoothly.
Some financial firms, including Morgan Stanley, are predicting the buyback to be closer to between $8 and $10 billion, while Goldman Sachs says the move won't be enough, according to Markets Insider.
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To gauge how high the concern is for American wallets and what they can do in response, MoneyLion spoke to Chad Cummings, an attorney and CPA at Cummings & Cummings Law and Melanie Musson, a finance expert with Quote.com.
Why There May Be Signs of Trouble
While Cummings said he wouldn’t see the buyback itself a recession signal, he would call the circumstances forcing the Treasury to triple certain long-term buybacks far more troubling.
“The 30-year Treasury yield recently reached a 19-year high, and the Treasury responded by expanding purchases of long-dated government debt to support market liquidity,” he added.
Further, Cummings, a certified financial planner, said the Fed created this trap by allowing inflation to persist above its 2% target for far too long. He said we’ve been in a dangerous inflationary trend since COVID.
“Remember that slower inflation, what economists call disinflation, does not repair the damage,” he added. “If a household expense rose from $100 to $125, reducing inflation merely means the next increase happens more slowly. Consumers need some actual price-level reversal, but deflation also increases the real burden of existing debt.”
Internal Conflicts May Be Partly to Blame
The fight between former Federal Reserve Chair Jerome Powell and President Donald Trump, on top of the new battle between the president and current chair Kevin Warsh, on when and how to lower rates may have had an impact on the current situation.
This ongoing dispute leaves policymakers boxed in, according to Cummings.
“Kevin Warsh, chair of the Federal Reserve, must keep monetary policy restrictive enough to restore price stability,” Cummings said. “His new ‘less is more’ approach with respect to the Fed's communication strategy seems to be backfiring. Treasury Secretary Scott Bessent has an obvious interest in containing long-term yields because a $40 trillion federal debt load becomes harder to finance as rates rise.
“However, his boss, President Trump, would love nothing more than rates to fall, which would send inflation to the moon, to counteract the sluggish housing markets. There is a conflict of interest here to say the least.”
History Lessons and Your Budget
History could be a strong indicator of what's to come, according to Cummings. He believes the economy is starting to look like it did in 2007 and 2008.
“If the Treasury must support the bond market while the Fed still fights inflation, the economy has very little margin for another shock,” he said. “We could be looking at 1970s era stagflation. If someone has seen significant gains in the equities market this year, now might not be the worst time to cash out and shift liquidity into inflation-resistant assets.”
Bottom Line
What can you do to help preserve your money during these uncertain times? Musson offered some advice to Americans facing budget constraints as a result of the turmoil.
“The economy has bad times and good times,” she said. “Be careful with your money. Build cash reserves. Invest in your retirement accounts."
She also recommended not being reactionary to the news cycle saying, "Do the best you can with what you have and turn off the noise of analysts predicting disaster.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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