Treasury Secretary Scott Bessent says Trump 2.0 focusing on 10Y yields, not Fed

The former hedge fund manager also said that when it comes to the Fed, “I will only talk about what they’ve done, not what I think they should do from now on.” He said that 10-year Treasury yields climbed after the Fed’s “jumbo rate cut,” referring to the 50 basis-point reduction that Chair Jerome Powell and his colleagues enacted in September.

While the Fed’s short-term benchmark serves as a key reference for money markets, 10-year Treasuries are a benchmark for 30-year mortgage rates along with other key borrowing rates. The bond benchmark closed at a fresh low for 2025 on Wednesday after weak service-sector activity data and Treasuries were little changed in Asia trading after Bessent’s remarks.

“The bond market is recognizing that” under Trump “energy prices will be lower and we can have non-inflationary growth,” Bessent said of the drop in yields in recent weeks. “We cut the spending, we cut the size of government we get more efficiency in government. And we’re going to go into a good interest-rate cycle.”

The US government can influence yields through deciding which maturities to issue when it sells debt and managing its overall borrowing requirements by cutting the deficit.

Earlier, the US Treasury maintained its guidance on keeping sales of longer-term debt unchanged well into 2025, despite Bessent having criticized the issuance strategy of his predecessor before he was picked for the job. Dealers have viewed increased sales of longer maturities as inevitable at some point, a move which could help push up their yields.

A more direct option to influence yields would be so-called curve control where a country’s central bank buys bonds to keep yields close to a target, like Japan did until last year. The US carried out such a program in the 1940s, while the Fed bought longer-term bonds as part of Operation Twist over a decade ago.

The Fed is independent from the Treasury and Bessent gave no indication he was in favor of such direct intervention.

For Stephen Miller, investment strategist at Grant Samuel Funds Management in Sydney, the best way to bring 10-year yields lower would be through a lower budget deficit. The US is currently running a deficit of around 7% of gross domestic product.

“Concrete measures will be closing the budget deficit or reducing the budget deficit and rethinking this whole tariff strategy,” he said. “Increasing the supply of energy will help. But when you put it against tariffs, budget deficit, immigration, I’m not yet convinced that it’ll be enough to send 10-year bond yields lower.”

Fed Rates
After the Fed left its benchmark unchanged last week, Trump blasted the US central bank in a social media post for having “failed to stop the problem they created” with the surge in prices. But he stopped short of the overt policy actions that he pressed the Fed to implement at times during his first administration.

The president believes if energy prices are brought down, the tax-cut extensions the administration is working toward are enacted, and the economy is deregulated, “then rates will take care of themselves, and the dollar will take care of itself,” Bessent said.

Interviewed by Lawrence Kudlow, who served as Trump’s White House National Economic Council director in his first term, Bessent repeated his economic policy mantra of 3-3-3 — referring to getting the fiscal deficit down to 3% of gross domestic product from above 6% in recent years, boosting oil production by 3 million barrels a day, and sustaining economic growth at 3%.

“Now that I’m in the seat, I believe in it more than ever,” Bessent said of the 3-3-3 program. He added that while government spending had boosted the economic expansion under former President Joe Biden, what the new team is aiming for is private-sector led growth, fueled by capital spending and a return of manufacturing jobs from overseas.

“The latest Trump administration angle is for rates to be pushed lower through downward pressure on the 10-year yield, through lower inflation and a lower fiscal deficit,” wrote strategists at ING Groep NV including Padhraic Garvey. “Achieve that and we’d agree. But achieve it first.”

Government Efficiency
Asked about the work of Elon Musk’s DOGE group with respect to the Treasury and its access to the department’s critical payments systems, Bessent reiterated a message the Treasury communicated earlier in the week — that those individuals aren’t making the decision on curtailing any payments.

“At the Treasury, our payments system is not being touched,” he underscored. “There’s a study being done. Can we have more accountability, more accuracy, more traceability, that the money is going where it is,” he said.

The so-called Department of Government Efficiency’s broader effort to address efficiency “is not going to fail,” Bessent said.

Asked about reports that suggested some Republican lawmakers may be eyeing a time-limited extension to Trump’s 2017 tax cuts — much of which are set to expire at the end of this year — Bessent doubled down on his support for making the reductions permanent.

“President Trump has a mandate. He came in to do big things, and one of the big things that this administration wants to do is make the 2017 Tax Cuts and Jobs Act permanent,” Bessent said. “That permanency will continue to make the US the No. 1 economy in the world in terms of growth.”