WASHINGTON — Stephanie Loftus, the deputy comptroller of the currency, is expressing concern about the effects the Treasury market could have on the economy.
Treasury debt, which is used to finance the federal government and to hedge against unexpected changes in rates, has been on a run for three years, as the gap between short- and long-term interest rates have narrow.
But Federal Reserve officials including Mr. Loftus, a supervisory official who does oversight on behalf of the banking industry, said in testimony before the House Financial Services Committee that the increase in yields — or interest rates — could be worrisome.
In 2017, the spread between yields on three-month and 10-year Treasury notes widened to 0.24 percentage point, from 0.19 percentage point the previous year. The gap has been widening in recent months, but at about 0.20 percentage point, it still is more than 0.20 percentage point lower than it was in 2016.
“Over the longer run, the larger the spread, the more likely the economy is to achieve its potential” Gross Domestic Product growth, Mr. Loftus told lawmakers at a hearing Oct. 10.
Many on Wall Street fear that the spread widening could pressure the government’s ability to pay interest on its debt, and Mr. Loftus on Monday said she wants to do more to help control the interest cost of federal borrowing.
“As Treasury draws closer to the limit on its borrowing authority, there may come a point at which the resulting spike in interest costs puts our nation in a situation where it will lose its hard-won control of interest rates,” she told lawmakers.
Ms. Loftus called on Congress to pass a “softer” version of the Treasury Accountability and Transparency Act, which would require Treasury to report to Congress about various potential flash points of the Treasury market.
For example, Ms. Loftus noted that Treasury owes $91 billion on Feb. 2, and Treasury is poised to be near the debt limit of $20.134 trillion as of Oct. 17. And Treasury pays interest on this debt as the rates fluctuate.