“There’s a huge impact on everyone else, but the Treasury Department was nine months before it,” said Lou Crandall, chief economist at Wrightson ICAP.
The Trump team’s advances are proving to be key to limiting the turmoil in sovereign debt markets from such massive spending. Bond yields have already risen in recent months due to the better outlook for the economy, adding to the cost of new borrowing – a momentum that ripples through the markets and is expected to be a focal point if Federal Reserve policymakers move meet in the coming week.
Mnuchin’s planning also shows that the Trump administration itself was prepared for the possibility that the economy would need another major infusion of cash to get out of the pandemic completely, despite Republicans now resisting the price tag of Biden’s bailout package.
“Early on in the Covid crisis, I made sure that we always had enough funds available to be prepared for the necessary economic reactions,” said Mnuchin in an email.
The Treasury Department must always have enough cash to fund the immediate government spending obligations it holds as deposits with the Federal Reserve. But those funds have more than quadrupled in 2020. When Biden took office, the Treasury Department’s deposits with the Fed were about $ 1.6 trillion, compared to $ 400 billion in 2019, and the Treasury Department is expected to be about $ 1 trillion burns this already borrowed money to help fund the relief package.
“That’s $ 1 trillion that the Treasury Department won’t have to borrow this year,” said Seth Carpenter, UBS’s chief US economist, who served as the Treasury Department’s senior debt management officer under President Barack Obama.
Treasury Secretary Janet Yellen’s plans to delve into the government’s deposits with the Fed, as well as the central bank’s own efforts to stimulate the economy through substantial purchases of US federal debt, “have helped fight back fear and volatility,” said Julia Coronado, president from MacroPolicy perspectives.