The Fed Vs. The Treasury: All Roads Lead To Inflation

The Fed raises interest rates to make loans less attractive and bring inflation down, but The Treasury has its own set of magic tricks to artificially "Stimulate" or "Tighten" the economy as well.

If Treasury markets can't be reigned in, the Fed expands its balance sheet by buying those Treasury securities to add liquidity and stability.

"QE" refers more specifically to operations where the Fed is buying other assets beyond just Treasury securities, as occurred in the 2008 crisis and during COVID. But the Treasury buying back its own issued debt is, in essence, QE by another name.

Both the Treasury and Fed need to keep Treasury yields down, but tightened monetary policy encourages higher yields.

Yields have since gone down, but if inflationary pressures and other factors push them back past 5%, both the Fed and Treasury are trapped.

"Higher for longer" policy at the Fed is even more essential for holding back inflation as the Treasury injects liquidity into markets.

So are the Fed and Treasury in opposition, or are they working together, one changing its policy to prevent a disaster caused by the policies of the other? The answer is complex, but the oversimplified version is that the two have locked the economy into a game of musical chairs where, eventually, the music is bound to stop.

https://schiffgold.com/commentaries/the-fed-vs-the-treasury-all-roads-lead-to-inflation/