Jurrien Timmer, Global Macro Director at Fidelity Investments, stated that the U.S. Treasury Department's increase in long-term bond buybacks and its focus on issuing short-term Treasury bills are putting pressure on the dollar while supporting Bitcoin and gold.
Timmer noted that the dollar weakened last week after the U.S. Treasury Department bought back more long-term bonds and issued more short-term ones in response. He argued that the sharp rise in gold and Bitcoin prices over the same period reflects market expectations regarding future fiscal and monetary policy.
In the opinion of the well-known analyst, investors may have begun to factor in a potential shift in the U.S. towards what is increasingly described as "fiscal dominance," and a weakening of the Federal Reserve's independence.
Timmer made the following statements:
"Notably, the U.S. Treasury Department's issuance of additional short-term Treasury bills last week, while simultaneously buying back additional long-term bonds, led to a drop in the dollar and a sharp rise in gold and Bitcoin prices. The market senses that a slippery slope is forming towards fiscal dominance and a potential loss of Federal Reserve independence."
"Maintaining Low Bond Yields May Require an Increase in Bond Buyback Volumes."
According to Timmer, for the U.S. Treasury Department's strategy of maintaining pressure on long-term bond yields to be successfully implemented, the bond buyback program may need to be significantly expanded compared to current levels.
However, Timmer noted that such a scenario could force the Federal Reserve to intervene, potentially meaning the central bank's involvement in a kind of "Operation Twist"-style policy aimed at altering the maturity structure of the bond market.
Timmer stated that such developments could increase the risk of currency depreciation and offered the following assessment:
"For the U.S. Treasury Department to succeed in keeping interest rates low, it may need to significantly increase the scale of its bond buyback operations. This could require Federal Reserve intervention in the form of an 'Operation Twist' policy and could lead us towards currency depreciation."
Timmer: Loose Fiscal and Monetary Policy is Favorable for Bitcoin.
According to the Fidelity representative, the simultaneous implementation of stimulative fiscal policy and loose monetary policy creates a particularly negative picture for the dollar.
Noting that the dollar is at a significant long-term trend line, Timmer said that such a macroeconomic environment is clearly favorable for gold, and Bitcoin could also benefit from it.
*This is not investment advice.
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