The role of the federal reserve in ensuring the sustainability of the US debt market today

The stability of the US government bond (treasury) market appears to be a critical element for the United States to maintain its dominant position in the global financial and economic system. The study examines the Fed’s impact on the sustainability of the US debt market, noting in particular the significant increase in the government regulator’s share of US government bond holdings over the past 15 years. The factors influencing the regulator’s ability to conduct prolonged monetary policy tightening under inflationary pressures in 2022-2023 are highlighted. The problems faced by the Treasury market as the Fed transitions from demand creation to creation of additional supply on the debt securities market amid tightening monetary policy are highlighted. It is concluded that a scenario is likely in which the Fed will not be able to return the inflation rate to its target before a forced transition to monetary policy easing, leading to continued high growth rates in the consumer price index, which in turn reduces the dollar’s attractiveness as a global reserve currency and increases risks to the global financial system.