Carlyle: The roles of the U.S. Treasury and the Federal Reserve will become blurred

The Carlyle Group says the Trump administration's calls for the Federal Reserve to drastically cut interest rates, coupled with the prospect of increased U.S. short-term bond issuance, could disrupt the Treasury market and ultimately drive up long-term borrowing costs. Jason Thomas, Carlyle Group's head of global research and investment strategy, said: "Bondholders want to believe that the Fed's role is to preserve the actual value of their principal. If they instead perceive the Fed as more focused on government financing, we could see a sell-off in bonds and a rise in term premiums." The core of the issue is that Trump continues to pressure Federal Reserve policymakers to lower the benchmark interest rate to stimulate the U.S. economy – a move that would also open the way for the Treasury to save on interest payments by shifting to issuing short-term Treasury bills rather than locking in long-term debt in the current high-yield environment. U.S. Treasury Secretary Benson has floated this idea in recent months. (Jinshi)