Top Trump Economic Advisers Target Long-Term Interest Rates

To reduce borrowing costs for Americans, President Trump's economic team is focusing on influencing the 10-year Treasury yield, a rate largely determined by financial markets rather than central bankers.

Focus on Long-Term Yields

National Economic Council Director Kevin Hassett has emphasized the importance of monitoring long-term interest rates as an indicator of inflation expectations. He believes controlling inflation will relieve pressure on the Federal Reserve to raise short-term rates.

"3-3-3" Strategy

Treasury Secretary Scott Bessent's "3-3-3" strategy aims to reduce the deficit, sustain economic growth at 3%, and increase oil production by 3 million barrels daily. James Fishback of Azoria believes this plan will lower both inflation and the 10-year yield.

Targeting Government Spending

Elon Musk, head of the Department of Government Efficiency, aims to cut wasteful expenditures and reduce inflationary pressures. Wilmer Stith of Wilmington Trust sees this as crucial for lowering the 10-year yield by reducing Treasury supply.

Influence of Economic Factors

While the Fed's short-term rates influence long-term rates, other factors such as economic growth expectations, inflation, and Treasury supply also impact the 10-year yield.

Bond Market Dynamics

Bond yields move inversely to prices. As inflation rises, yields increase due to investors demanding higher returns as inflation erodes bond value. The 10-year Treasury yield has fluctuated recently, influenced by inflation readings, Treasury supply expectations, and international factors.

Deficit Reduction and Bond Yields

Ed Yardeni of Yardeni Research believes controlling government spending is key to keeping bond yields in check and avoiding the "bond vigilantes" who may push yields higher to pressure fiscal action.

Impact of Trade Policy

Trump's trade policies, including tariffs, are a wild card in terms of their effect on inflation and yields. While tariffs may generate revenue, economists warn of potential inflationary pressures and higher borrowing costs. However, demand for US Treasuries could increase if they are included as part of tariff negotiations, potentially pushing yields down.