Trump's Treasury Secretary: Focus on 10-Year Yield, Not Fed Rate Cuts

In a surprising shift, the Trump administration has indicated that it will focus on keeping the 10-year Treasury yield low rather than pressuring the Federal Reserve to cut interest rates. This change in strategy was announced by Treasury Secretary Scott Bessent during an interview with Fox Business host Larry Kudlow. Bessent emphasized that the administration's primary goal is to maintain lower rates, which they believe will be achieved by targeting the 10-year Treasury yield instead of the federal funds rate controlled by the Fed.

The 10-year Treasury yield serves as a benchmark for various types of loans throughout the economy, including mortgages and business financing. By focusing on this yield, the administration aims to control long-term inflation expectations and manage government borrowing costs. Bessent highlighted energy supply management as a key component of their strategy, suggesting that increasing energy supply could help achieve their goals.



The administration's new approach aligns with its broader economic agenda, which includes making the Tax Cuts and Jobs Act permanent, focusing on energy exploration, and reducing the federal budget deficit. By cutting spending and improving government efficiency, the administration seeks to lower the demand for government bonds, ultimately driving down the 10-year Treasury yield.

However, implementing these policies may face several challenges and roadblocks. Substantial spending cuts in politically sensitive areas like healthcare, Social Security, and defense may face strong resistance from lawmakers and the public. Additionally, market participants are skeptical about the potential for sustained yield reduction, as they believe an effective floor exists just under 4% based on current federal funds rate projections.

In conclusion, the Trump administration's focus on the 10-year Treasury yield reflects a more long-term, inflation-focused approach to fiscal policy. While this shift may face challenges in implementation, it could have various implications for investors, including potential benefits for bond yields, equities, and the U.S. dollar. As the administration works to lower the 10-year Treasury yield through energy supply management and deficit reduction, investors should closely monitor the progress of these policies and their impact on financial markets.