Sen. Kennedy Questions Treasury Sec. Yellen's Motives in Federal Borrowing, Alleges Election-Year Maneuvering

In a recent Senate hearing,! Senator John Kennedy of Louisiana accused Treasury Secretary Janet Yellen of artificially boosting the economy by borrowing at higher short-term interest rates to benefit President Joe Biden's reelection campaign. Kennedy criticized Yellen for choosing to borrow at a 5% interest rate instead of a more favorable 4% rate for longer-term debt.

Kennedy said, “You're paying 5% to borrow money when you could pay 4%. ... The reason you're doing this is to try to give the economy a sugar high five months before an election.”

Yellen responded to the allegations by stating that the Treasury's debt issuance strategy is aligned with historical norms and the advice of market participants. She emphasized that the Treasury does not attempt to time the market, maintaining a policy of regular and predictable issuance.

During the hearing, Kennedy expressed his concerns: "Today you can borrow for 10 years at 4.4%. Instead, you're choosing to borrow at 5.4%. That makes no sense!" He argued that borrowing at higher interest rates unnecessarily increases costs for taxpayers and undermines the Federal Reserve's efforts to reduce inflation.

Why this matters: The accusation of artificially boosting the economy has significant implications for the country's economic stability and the integrity of the electoral process. If true, it could lead to a loss of trust in the government and have far-reaching consequences for the economy and the 2024 election.

Yellen countered Kennedy's claims by explaining that market participants expect short-term interest rates to fall significantly below the current 10-year rate in the near future. She stated, "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."

The accusation comes amid a backdrop of rising national debt, which has surged to nearly $34.6 trillion under President Biden, an increase of $6.8 trillion since he took office. Kennedy argued that Yellen's borrowing strategy is designed to create a temporary economic boost, or a 'sugar high,' just months before the 2024 election.

Yellen firmly denied any intention to manipulate the economy for political gain. "First of all, let me say that we never time the market. A tenet of Treasury debt management is that issuance should be regular and predictable, and that's appropriate over time," she stated.

The Treasury Borrowing Advisory Committee, which advises the Treasury on debt issuance plans, supports the current strategy. Yellen noted that locking in debt for 10 years at current rates could result in higher long-term borrowing costs if short-term rates decrease as anticipated.

Kennedy remained unconvinced, reiterating his belief that the strategy is politically motivated. "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," he stated.

Debate continues, the Treasury's approach to debt issuance remains a point of contention. With the national debt at historic highs and the 2024 election approaching, the decisions made by Yellen and her department will be closely scrutinized.

Key Takeaways

• Senator John Kennedy accuses Treasury Secretary Janet Yellen of artificially boosting the economy to aid President Biden's reelection.
• Yellen defends the Treasury's debt issuance strategy, citing historical norms and market participant advice.
• Kennedy claims borrowing at higher interest rates increases costs for taxpayers and undermines Fed efforts to reduce inflation.
• Yellen counters that short-term interest rates are expected to fall, making current borrowing rates reasonable.
• The national debt has surged to $34.6 trillion under President Biden, sparking concerns about the economy and electoral integrity.