Mr. Bernanke made it clear in yesterday’s rate decision that he wants to keep interest rates lower for longer.
Despite signs of economic recovery, he wants to see significant signs of improvement in unemployment as well, among other things.
Given that employment generally lags an economic recovery, this means it could be a while.
Thus isn’t it convenient that the Federal Reserve is at the same time planning to extend the average maturity of U.S. debt?
Reuters: The U.S. Treasury plans to lengthen the average maturity of its bonds over the next year, an effort to lock in low interest rates on longer-term bonds to address the government’s record borrowing needs.
The move will bring the average duration of outstanding Treasury securities closer to its historical average of 60 from 53 months, said Matthew Rutherford, the Treasury’s deputy assistant secretary for federal finance.
Then once the average maturity has been conveniently extended, the Fed will eventually start increasing interest rates. Trading bonds must be easy when you’re the one who sets interest rates. No need for all the Fed-guessing, since well, you are the Fed.
Yet we can’t blame them on this one issue. Technically they’re getting lower cost debt for the U.S. taxpayer. If anyone is to be ashamed, it’s whoever is actually buying 30-year bonds from the U.S. right now for just a 4.43% yield, or even 10-year treasuries at 3.55%.