In a recent hearing, Senator John Kennedy, a Republican from Louisiana, accused Treasury Secretary Janet Yellen of adopting a short-term, high-interest rate borrowing strategy to stimulate the economy, a move he believes is aimed at securing President Joe Biden's reelection.
Under Biden's administration, the national debt has skyrocketed to approximately $34.6 trillion, a staggering increase of around $6.8 trillion since he assumed office. Yellen's decision to borrow short-term bonds at higher interest rates, rather than opting for long-term bonds with lower rates, has drawn sharp criticism from Kennedy.
"Today, you can borrow for 10 years at 4.4%. Instead, you're choosing to borrow at 5.4%," Kennedy pointed out, expressing his disbelief at the Treasury's approach. "That makes no sense!"
Yellen defended her strategy, stating, "Market participants believe that short-term interest rates will come down, and they will come down to a level substantially below the current 10-year."
According to Trading Economics, the current ten-year borrowing rate for Treasury bonds stands at 4.35%, marking the lowest it has been in approximately three weeks.
Kennedy further questioned Yellen about her announcement last November, where she revealed plans to issue a significant amount of short-term debt. Yellen confirmed this, leading Kennedy to express his concern about the implications of the inverted yield curve.
"Because of the inverted yield curve, that means that you're going to pay more in interest on short-term debt than say 10-year debt," Kennedy explained. "First, that costs taxpayers a lot more money in interest. And second, you're working at cross purposes with the Federal Reserve because what you're doing is stimulating the market. You're pumping money into the economy and Jay Powell's over here trying to reduce inflation. And you're trying to increase it."
Kennedy continued to press his point, talking over Yellen's attempts to counter his claims. He suggested that the only logical reason for the Treasury's decision to pay an interest rate that is 100 basis points higher than necessary was to artificially stimulate the economy ahead of the election.
Kennedy expressed his concern for taxpayers rather than investors, but Yellen argued that the principle remains the same for both groups.
"You're borrowing at 5% when you could borrow at 4% to deficit spend. And it makes absolutely no sense why you would do that other than to try and artificially stimulate the economy and help Joe Biden get reelected," Kennedy reiterated.
Yellen responded, "We're not trying to time the market. We have a policy that we want to hold the issuance of short-term bills in line with recommendations of the Treasury Borrowing Advisory Committee."
Meanwhile, average interest rates on credit cards have also seen a recent surge, increasing from 14.56% in February 2022 to 21.47% as of November 2023. In 2023 alone, Americans' credit card debt rose by $143 billion, reaching over $1 trillion in total.
Kennedy concluded by reasserting his belief that Yellen's short-term debt borrowing strategy is an attempt to give the economy a "sugar high" to aid Biden's reelection. However, Yellen firmly denied these allegations.
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