U.S. Secretary of the Treasury Scott Bessent speaks, at the White House, in Washington, U.S. February 3, 2025.
Elizabeth Frantz | Reuters
The Trump administration is more focused on keeping Treasury yields low rather than on what the Federal Reserve does, Treasury Secretary Scott Bessent said Wednesday.
While in the past Trump has implored the Fed to cut its benchmark rate, Bessent said the current strategy is using the levers of fiscal policy to keep rates low. The benchmark the administration is using will be the 10-year Treasury, not the federal funds rate that the central bank controls, he added.
“The president wants lower rates,” Bessent said in an interview with Fox Business host Larry Kudlow, who served as director of the National Economic Council during Trump’s first term. “He and I are focused on the 10-year Treasury and what is the yield of that.”
Beginning in September 2024, the Fed engaged in a rate-cutting cycle that took a full percentage point off the funds rate. The benchmark sets what banks charge each other for short-term lending but historically has influenced a host of other rates for things like car loans, mortgages and credit cards.
However, Treasury yields actually jumped following the Fed cuts, as did market-based indicators of inflation expectations. Since Trump has taken office, though, the 10-year Treasury has been moving mostly lower and dropped about 10 basis points, or 0.1 percentage point, in Wednesday trading.
10-year yield
Bessent indicated that Trump will not be hectoring the Fed to cut, as he did during his first term.
“He wants lower rates. He is not calling for the Fed to lower rates,” Bessent said. Trump believes that “if we deregulate the economy, if we get this tax bill done, if we get energy down, then rates will take care of themselves and the dollar will take care of itself.”
One priority of the administration is to get the Tax Cuts and Jobs Act made permanent, while it also will focus on energy exploration and deficit reduction.
“We cut the spending, we cut the size of government, we get more efficiency in government, and we’re going to go into a good interest rate cycle,” Bessent said.
The Treasury secretary’s statement on targeting bond yields “is consistent with our view that he has essentially one job – to try to prevent the 10y yield from breaking 5 percent at which point we think Trumponomics breaks down, with equities rolling over and housing and other rate sensitive sectors breaking lower,” wrote Krishna Guha, head of global policy and central bank strategy at Evercore ISI.
The 10-year last traded at 4.45%, down from its mid-January peak of 4.8%.
A few days ago, Trump in fact said he agreed with the Fed’s Jan. 29 decision to keep the funds rate steady, which Guha said “eases tension” between the two sides and could be positive for markets.
