Odd Lots · Thursday, September 3, 2026
Daryl Duffy speculates that a new Fed task force, possibly led by Jeremy Stein, might recommend the Fed reduce its holdings of long-term Treasury securities. This move aims to decrease the volatility of the Fed's interest expense by replacing long-term bonds with shorter-term Treasury bills, effectively hedging against rising interest rates.
“I predict that they will recommend reducing the quantity of long-term treasury securities that the Fed holds and replacing those with Treasury bills in order to reduce the volatility of the Fed's interest expense.”
“So, for example, if you back the reserves one-to-one with Treasury bills, then every time the Fed has to pay more interest to the banks to control inflation, it's getting more interest on their Treasury bills one-for-one.”