President Donald Trump isn’t waiting for the Federal Reserve to fix anything. His administration is sidestepping the central bank and focusing directly on Wall Street’s bond market, betting that controlling the 10-year Treasury yield will be more effective than cutting short-term interest rates.
Speaking on CBS’s Face The Nation, Kevin Hassett, Trump’s director of the National Economic Council, dismissed any expectation of Fed intervention, saying, “One way to tell whether markets think ‘are we getting inflation under control’ is to look at longer-term interest rates that the Fed doesn’t affect directly.”
“If we get inflation under control, then that takes the pressure off the Fed,” Hassent added.
Trump’s team zeroes in on the 10-year Treasury yield
Treasury Secretary Scott Bessent made it even clearer weeks ago when he told reporters that Trump is “not calling for the Fed to lower rates.” Instead, his team is laser-focused on bringing down the 10-year Treasury yield, which could lower mortgage rates, business loans, and other borrowing costs without relying on the Fed.
To make this happen, Scott introduced the “3-3-3” plan: Cut the federal deficit from 6% of GDP to 3%, sustain economic growth at 3%, and boost oil production by 3 million barrels per day.
Elon Musk’s Department of Government Efficiency (DOGE) is also playing a role, with the task of eliminating wasteful government spending that fuels inflation and keeps Treasury yields high, so its success is a pretty big deal. The 10-year then went on a wild ride over the past week, with expectations being whipsawed around by inflation readings, expectations for Treasury supply, tariff prospects, and international factors.
It ticked up last Wednesday when a Consumer Price Index (CPI) reading for the month of January showed inflation heating back up. Then it came back down below 4.5% after a separate reading on producer prices offered more assurance about inflation.
Hassett is optimistic, though, as he claimed that since Trump announced plans to control inflation, the 10-year yield has dropped by 40 basis points, saving Americans $40 billion in borrowing costs. “That’s just from talking about the stuff that we’re about to do,” he said.
Elon shares this sentiment, as he posted on X: “As it becomes clear DOGE is working, you will see the long-term Treasury bill yields fall. Then all Americans will benefit from lower interest payments on mortgages, small business debt, credit cards, and other loans.”
Cutting the deficit to rein in Treasury yields
Wilmer Stith, a Wilmington Trust bond portfolio manager, believes that reducing the deficit is Trump’s most powerful weapon against rising Treasury yields. “If DOGE really makes a sizable impact and Elon Musk and his team can start paring down billions and billions of dollars, that would be a good thing in terms of this concern of larger Treasury auction supply coming forward,” he said.
The Treasury Department has already reassured investors that it isn’t planning massive Treasury sales, which could help keep yields stable. In its quarterly refunding statement, it said, “Treasury believes its current auction sizes leave it well positioned to address potential changes to the fiscal outlook.”
If Trump fails to cut spending enough, the bond market could revolt, forcing yields even higher and wrecking his entire strategy, according to the US Treasury.
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