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Trump Shifts Focus From Fed Rates to Long-Term Treasury Yields
On Tap Today
Long Term Yield: The Trump administration has stated that they are focusing more on 10-year Treasury yields than on the Federal Reserve's actions regarding federal funds rates.
Essential Metrics: Check out our key metrics and insights, including Federal Reserve data on lending, delinquency, prices, construction, and more.
Essential Metrics
When he got into office, President Trump said that he would tell the Federal Reserve to lower interest rates. So far, that hasn’t happened. In the Fed’s meeting last week Fed chair Jerome Powell said that the board would need to see “real progress on inflation or some weakness in the labor market before we consider making adjustments.” But despite the Fed keeping their rate steady (with no indication of when they might start lowering it again) the ten-year treasury bond rate has already started to drop slightly.
Now Trump is downplaying the importance of the federal funds rate that is set by the Federal Reserve. Treasury Secretary Scott Bessent made a statement that the administration is focused more on the 10-year treasury bond rate than the federal funds rate. This would be a departure from other presidents, who have considered the Federal Funds Rate to be the most important metric of lending markets and the economy as a whole.
The 5, 7, and 10-year treasury bond rates are more important to those issuing commercial mortgages than the federal funds rate. While the two do often correlate, they have been going in separate directions lately. Long-term treasury rates have actually risen since the Fed started cutting short term rates. Last September the 10-year treasury was roughly 3.7 percent. By the end of January 2025 this rate had jumped to over 4.6 percent. Now, even as the Fed has decided to keep rates steady, the 10-year treasury rates are starting to head back down.
The 10-year rates measure investor perceptions of the future economy, not just what the Federal Reserve Board members think will happen. It seems that investors have been concerned about future inflation over the past few months but are now starting to see signs of a healthy economy. If the 10-year rates continue to drop it would be a good sign for the commercial real estate industry that is faced with refinancing a record number of maturing loans this year. A significant drop would also signal the Federal Reserve Board that their projections might not represent the broader market which might push them to cut rates and ultimately achieve Trump’s original goal.
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Overheard
When Bessent declares that the Trump administration is laser-focused on the 10-year yield over the Fed, it’s a bold signal to credit markets and bond vigilantes alike: they hold the real power, while the Fed is stuck in a time warp, completely out of touch. Bessent understands… x.com/i/web/status/1…
— James E. Thorne (@DrJStrategy)
2:13 PM • Feb 6, 2025
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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.
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