![Alberto Musalem, president of the Federal Reserve Bank of St. Louis [Reuters]](https://wimg.heraldcorp.com/news/cms/2026/08/21/rcv.YNA.20260416.PRU20260416058101009_P1.jpg)
Concerns are mounting that the Treasury Department's expanded buyback of long-term government bonds could complicate the Federal Reserve's monetary policy calculus. Senior Fed officials, however, drew a line against any direct link between the two, insisting that monetary policy is set independently.
Separately from the buyback's potential impact, officials also appear inclined to keep the door open to further rate hikes, given their assessment that financial conditions are already quite accommodative.
Alberto Musalem, president of the Federal Reserve Bank of St. Louis, said Thursday in a CNBC interview that the Fed sets monetary policy independently of debt management and fiscal policy. "We focus on the labor market and inflation," he said, responding to a question about the Treasury's expanded long-bond buyback program.
On the recent selloff in long-term government bonds, Musalem said the move reflected intensifying competition for capital, driven by the federal government's large financing needs and corporate demand for funds to build out AI infrastructure.
He added that the Fed's credibility "is not in question" and that inflation expectations "are well anchored."
Musalem nonetheless described current financial conditions as "quite accommodative" and left open the possibility of additional rate hikes.
On next month's FOMC meeting, he said he wanted to "keep an open mind," adding that "more gradual rate increases are preferable and less disruptive than larger, more abrupt increases that might be needed later."
Mary Daly, president of the Federal Reserve Bank of San Francisco, said Thursday on Bloomberg TV that current long-term bond yields are not sending "a lot of signals" to the Fed's policy deliberations.
Asked whether a shift in Treasury issuance toward shorter-dated securities could create problems for the Fed's conduct of monetary policy, she said it was "still early days" and that she did not want to "get ahead of the issue before we've had a chance to fully examine it."
Some market participants believe that if the Treasury's buyback operation pushes long-term rates lower and eases financial conditions, it could partially offset the Fed's efforts to maintain tighter conditions.
Reuters noted that US financial conditions are already supporting growth while failing to bring down price pressures. A Treasury-driven decline in long-term rates could increase the need for benchmark interest rate hikes, it said.
mokiya@heraldcorp.com
