Treasury Secretary Scott Bessent has a new argument for why the Federal Reserve should cut interest rates: Treasury bond yields.
The administration has been clamoring for interest rates to come down this year. President Donald Trump recently ramped up criticism of the central bank and Chairman Jerome Powell, suggesting he would fire him before backing down as markets balked at the idea of political interference in setting monetary policy.
This week, the Treasury Secretary reiterated the administration’s stance that interest rates should be lower.
“We are seeing that two-year rates are now below fed funds rates,” he told Fox Business on Thursday. “That’s a market signal that they think the Fed should be cutting.”
The 2-year Treasury yield was about 3.56% Thursday morning, below an effective fed funds rate of 4.33%. This dynamic has been on display since at least mid-February, when the two-year yield surpassed 4.36%.
The White House has made interest rates a key focus this year as it looks to bring down borrowing costs for consumers. But the Fed’s hands may be tied for now, as it deals with still-elevated inflation and a slowing economy. While Powell has insisted the central bank can be patient, Trump continues to see things differently.
The president doubled down on his views Wednesday, suggesting that he has a better grasp of US monetary policy than the head of the central bank.
“I think I understand interest a lot better than him because I’ve had to really use interest rates. We should have interest rates go down,” he said during a speech.
Still, the rhetoric marks a step back from Trump’s more forceful attacks on Fed leadership, noting that Powell’s “termination cannot come fast enough.”
The Fed’s next policy meeting is scheduled for May 7, but few investors are expecting a pivot on the interest rate outlook. According to the CME FedWatch Tool, markets see June as the earliest date for a possible rate cut.
Bessent reiterated that he and the president are focused on the 10-year Treasury yield as a gauge of economic health. When the yield spiked aggressively in early April, it was a result of Wall Street institutions de-leveraging their Treasury positions, he said.
“It just turned out that it was some overleveraged market players,” he said. “Now we’re continuing on the downward path, and I think our policies are going to bring down inflation.”
Other observers have less optimistic views on what the bond market is telling Trump. Commentators have said that the meltdown indicated foreign investors were souring on US assets as volatile trade policy and attacks on the Fed sowed doubt about the status of Treasurys and the dollar as safe havens.
