Economic Advisers Aim to Lower Borrowing Costs by Targeting 10-Year Treasury Yields

The Trump administration's top economic advisers are focused on reducing borrowing costs for Americans by targeting the 10-year Treasury yield (^TNX). National Economic Council Director Kevin Hassett explained that by influencing long-term interest rates, which are not directly controlled by the Federal Reserve, the administration can alleviate inflationary concerns.

"3-3-3" Strategy to Promote Growth and Lower Inflation

Treasury Secretary Scott Bessent and Hassett have outlined a "3-3-3" strategy to lower the 10-year yield by promoting economic growth, productivity, and reducing government spending. This plan aims to cut the deficit from 6% to 3% of GDP, sustain growth of 3%, and increase oil production by 3 million barrels per day.

Influence on 10-Year Yield

While the Fed's short-term borrowing rates can affect longer-term rates, factors such as economic growth outlook, inflation, and Treasury supply also influence 10-year government bond yields. Despite the Fed's rate cuts last fall, longer-term rates initially rose, attributed to inflation expectations.

Bond Yields and Inflation

Bond yields move inversely to their prices. Yields increase when inflation rises, as investors demand higher compensation to offset the erosion of bond value. The 10-year US Treasury yield reached a high of 4.8% in January before stabilizing around 4.5%.

Key Factors in Yield Reduction

Hassett highlights a decline in the 10-year Treasury rate since the announcement of the inflation control plan, saving American taxpayers billions. Elon Musk's Department of Government Efficiency (DOGE) aims to trim government waste, further reducing inflationary pressures and potential yield increases.

Economists also emphasize the importance of controlling government spending to lower the deficit and reduce the supply of Treasuries, mitigating concerns of excessive auction supply. Tariffs and their potential impact on inflation and yields pose a wildcard factor in the administration's economic plans.

By monitoring the balance between growth and inflation risks, the administration hopes to maintain low bond yields and avoid confrontations with "bond vigilantes." The Treasury may consider boosting demand for US Treasuries through tariff negotiations or revaluing gold holdings on the Fed's balance sheet as additional strategies to lower yields.