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

Carlyle stated that the Trump administration is calling for the Federal Reserve to significantly cut interest rates, and the prospect of increased issuance of short-term U.S. bonds could disrupt the Treasury market, potentially raising long-term borrowing costs. Jason Thomas, Global Head of Research and Investment Strategy at Carlyle, said: "Bondholders want to believe that the Federal Reserve's responsibility is to maintain the real value of their principal. If they instead feel that the Federal Reserve is more focused on government financing, there could be a sell-off in bonds and an increase in term premiums." The crux of the issue is that Trump continues to pressure Federal Reserve policymakers to lower the benchmark interest rate to stimulate the U.S. economy—this move would also open the door for the Treasury to save on interest expenses by shifting to issuing short-term Treasury bills instead of locking in long-term debt in the current high-yield environment. U.S. Treasury Secretary Yellen has proposed this idea in recent months