U.S. Treasury Secretary Bessent Rarely Publicly Urges Fed to Expand Tool to Help Defend Yen
U.S. Treasury Secretary Scott Bessent urged the Federal Reserve to expand a tool that Japan can use to support the yen, drawing renewed attention to the relationship between the two institutions, which typically operate independently. After the U.S. Treasury and Japan joined forces to support the yen, Bessent on Sunday praised the Fed’s Foreign and International Monetary Authorities Repo Facility, known as FIMA. The facility allows foreign governments to use their holdings of U.S. Treasuries as collateral to obtain dollars. In a social-media post, Bessent described the Fed tool as an important source of support for Japan’s actions and said, “We will encourage expanding the scale of this measure over the coming months.” Japanese Finance Minister Satsuki Katayama said in a statement that Japan confirmed it bought yen last Friday and would use the Fed facility in the future. The Fed declined to comment. Cooperation between the Fed and the Treasury to ensure financial stability is not unusual, particularly during periods of market volatility. Market participants said volatility in Treasury yields provided a strong rationale for the Fed to assist Japan’s yen intervention, because Japan’s sale of its Treasury holdings could make conditions worse. Still, people who closely follow the Fed said it is rare for a Treasury secretary to publicly urge the central bank to modify one of its tools, particularly a facility within the decision-making authority of the Federal Open Market Committee. “This is highly unusual,” said Mark Sobel, a former senior Treasury official. “In my day, Treasury secretaries were reluctant to speak publicly about issues related to the Fed’s monetary operations. If it was really necessary, they would communicate privately with the Fed chair and handle the matter behind the scenes.” The FIMA facility is intended to give foreign governments seeking dollars an alternative to selling their Treasury holdings, helping cushion the effect on U.S. bond yields. The facility has a daily transaction cap of $60 billion for each counterparty. Increasing the counterparty limit would require approval from the Fed’s Foreign Exchange Subcommittee, which reports to the FOMC and is required to notify the FOMC of any planned changes. Bessent made the appeal as the Fed continued to face political pressure from the White House not to raise interest rates, even though inflation remained well above the 2% target. President Donald Trump has repeatedly argued that interest rates should be lower. Bessent has previously advocated lower interest rates, despite promising when he took office that he would not discuss the direction of rates. He has also strongly advocated expanding currency swaps to more countries to strengthen the “dominance of the dollar,” a move that could require Fed support. Steven Kamin, a senior fellow at the American Enterprise Institute and a former head of a Fed department, said that as the world’s largest foreign holder of U.S. Treasuries, Japan’s potential sale of part of its holdings to buy yen meant the Fed had a responsibility to minimize the spillover effect on bond yields. “I’m not sure the FOMC would be willing to support foreign-exchange intervention,” Kamin said. “On the other hand, if a country like Japan is going to intervene anyway, it’s better that it not sell Treasuries.” Eric Wallerstein, chief macro strategist at Clocktower Group, said expanding the facility would not pose much risk to the Fed, either politically or to financial markets. He previously served as an adviser to former Fed Governor Stephen Miran. “Because the borrowing is short term, is collateralized by Treasuries and carries interest, the Fed faces no risk,” Wallerstein said. However, Tobin Marcus of Wolfe Research said the public nature of Bessent’s appeal was more striking to Fed watchers than the request itself. “I can’t think of another time when the Treasury publicly called on the Fed to make such a policy change rather than coordinating behind the scenes,” Marcus said.
After the U.S. Treasury and Japan joined forces to support the yen, Bessent on Sunday praised the Fed’s Foreign and International Monetary Authorities Repo Facility, known as FIMA. The facility allows foreign governments to use their holdings of U.S. Treasuries as collateral to obtain dollars.
In a social-media post, Bessent described the Fed tool as an important source of support for Japan’s actions and said, “We will encourage expanding the scale of this measure over the coming months.”
Japanese Finance Minister Satsuki Katayama said in a statement that Japan confirmed it bought yen last Friday and would use the Fed facility in the future. The Fed declined to comment.
Cooperation between the Fed and the Treasury to ensure financial stability is not unusual, particularly during periods of market volatility. Market participants said volatility in Treasury yields provided a strong rationale for the Fed to assist Japan’s yen intervention, because Japan’s sale of its Treasury holdings could make conditions worse.
Still, people who closely follow the Fed said it is rare for a Treasury secretary to publicly urge the central bank to modify one of its tools, particularly a facility within the decision-making authority of the Federal Open Market Committee.
“This is highly unusual,” said Mark Sobel, a former senior Treasury official. “In my day, Treasury secretaries were reluctant to speak publicly about issues related to the Fed’s monetary operations. If it was really necessary, they would communicate privately with the Fed chair and handle the matter behind the scenes.”
The FIMA facility is intended to give foreign governments seeking dollars an alternative to selling their Treasury holdings, helping cushion the effect on U.S. bond yields. The facility has a daily transaction cap of $60 billion for each counterparty.
Increasing the counterparty limit would require approval from the Fed’s Foreign Exchange Subcommittee, which reports to the FOMC and is required to notify the FOMC of any planned changes.
Bessent made the appeal as the Fed continued to face political pressure from the White House not to raise interest rates, even though inflation remained well above the 2% target. President Donald Trump has repeatedly argued that interest rates should be lower.
Bessent has previously advocated lower interest rates, despite promising when he took office that he would not discuss the direction of rates. He has also strongly advocated expanding currency swaps to more countries to strengthen the “dominance of the dollar,” a move that could require Fed support.
Steven Kamin, a senior fellow at the American Enterprise Institute and a former head of a Fed department, said that as the world’s largest foreign holder of U.S. Treasuries, Japan’s potential sale of part of its holdings to buy yen meant the Fed had a responsibility to minimize the spillover effect on bond yields.
“I’m not sure the FOMC would be willing to support foreign-exchange intervention,” Kamin said. “On the other hand, if a country like Japan is going to intervene anyway, it’s better that it not sell Treasuries.”
Eric Wallerstein, chief macro strategist at Clocktower Group, said expanding the facility would not pose much risk to the Fed, either politically or to financial markets. He previously served as an adviser to former Fed Governor Stephen Miran.
“Because the borrowing is short term, is collateralized by Treasuries and carries interest, the Fed faces no risk,” Wallerstein said.
However, Tobin Marcus of Wolfe Research said the public nature of Bessent’s appeal was more striking to Fed watchers than the request itself.
“I can’t think of another time when the Treasury publicly called on the Fed to make such a policy change rather than coordinating behind the scenes,” Marcus said.