The Trump administration is bypassing the Fed to lower long-term interest rates, relying on deregulation and tax cuts. Treasury Secretary Scott Bessent’s strategy could reshape markets—or face major hurdles.
The Trump administration is making a bold move to tackle interest rates—but this time, it’s sidestepping the Federal Reserve. Treasury Secretary Scott Bessent has signaled a new approach: focusing on long-term borrowing costs by influencing the 10-year U.S. Treasury yield, rather than relying on the Fed’s short-term rate policies. The strategy marks a significant departure from traditional monetary policy coordination and raises critical questions about its feasibility and market impact.
The 10-year Treasury yield serves as a benchmark for borrowing costs across the economy, affecting everything from mortgage rates to corporate debt financing. While the Fed’s decisions impact short-term rates, longer-term yields respond to factors like inflation expectations, government borrowing, and investor sentiment. Bessent’s plan hinges on the idea that fiscal policy—deregulation, tax cuts, and energy expansion—will naturally push yields lower.
Traditionally, the Treasury and the Federal Reserve have worked in tandem, with the Fed steering monetary policy and the Treasury managing government debt issuance. However, Bessent and President Trump are charting a different course.
Rather than pressuring the Fed to lower rates, the administration is focusing on policies that could indirectly influence long-term borrowing costs. Trump has previously criticized the Fed’s handling of interest rates but has recently acknowledged that keeping rates steady was an appropriate decision.
Bessent’s plan has sparked debate among economists and market analysts. While deregulation and fiscal stimulus can impact investor confidence, the actual effect on long-term yields remains uncertain.
Analysts suggest that historically, an administration can only influence yields indirectly through fiscal policy. The Fed continues to play a crucial role in shaping interest rates.
Another concern is inflation. The administration’s push for energy expansion and tax cuts could stimulate growth, but tariffs on China and potential trade disputes may counteract these efforts by fueling inflationary pressures. Higher inflation expectations could keep Treasury yields elevated despite the administration’s best efforts.
The early indicators are mixed. The 10-year yield, which briefly spiked above 5% following Trump’s election, has since edged lower to around 4.4%. But analysts caution that further declines are not guaranteed.
Even if tax cuts are implemented, legislative gridlock could limit the government’s ability to borrow more. Combined with the Fed’s cautious stance on rate cuts, this puts a natural floor under long-term yields.
Experts suggest that there is limited room for the 10-year yield to decline further, particularly with the Fed maintaining a measured approach to monetary policy adjustments.
The Trump administration’s strategy highlights a broader shift in economic policy—one that seeks to diminish the Fed’s influence while amplifying the role of fiscal measures in shaping market conditions. Whether this approach succeeds will depend on several variables: inflation trends, investor confidence, and the government’s ability to pass key economic policies.
For now, markets are in a “wait and see” mode. While Bessent’s focus on long-term rates offers a fresh angle, history suggests that sustained changes in Treasury yields are rarely dictated by government policy alone.