Fed’s 1.75-Point Rate Cuts Fail to Lower 10-Year Yields as $1.9 Trillion Deficit Swells Treasury Supply
Updated
Updated · Washington Times · Jul 22
Fed’s 1.75-Point Rate Cuts Fail to Lower 10-Year Yields as $1.9 Trillion Deficit Swells Treasury Supply
1 articles · Updated · Washington Times · Jul 22
Summary
Since September 2024, the Fed has cut its overnight lending and deposit rates by 1.75 percentage points, yet 10-year Treasury yields have risen 0.9 point—the benchmark that drives mortgages and other consumer borrowing.
A federal deficit equal to 5.8% of GDP, or about $1.9 trillion a year, is flooding markets with new Treasurys, offsetting the Fed’s easing and pushing up borrowing costs across credit markets.
The Fed’s $6.7 trillion balance sheet is still helping suppress rates by absorbing Treasurys and other securities, but selling those holdings would add supply and likely force investors to demand higher yields.
The opinion piece argues fiscal policy is now constraining monetary policy: lower rates will be hard to sustain unless Washington cuts spending or raises taxes to shrink deficits.
Broader inflation shocks since 2020—from COVID-19 and Ukraine to tariffs, Iran-related disruptions and data-center demand—have also kept inflation above target and left five-year consumer expectations at 3%.