The latest sign of that strategy came from National Economic Council Director Kevin Hassett. He made it clear at the weekend that he is more focused on 10-year Treasury yields (^TNX) than on any quick monetary policy changes at the Federal Reserve.
“One way to tell whether markets think ‘are we getting inflation under control’ is to look at longer-term interest rates that the Fed doesn’t affect directly,” he told CBS’s Face The Nation in an interview.
“If we get inflation under control, then that takes the pressure off the Fed,” he added.
Director of the National Economic Council Kevin Hassett outside of the White House on Feb. 7. (Photo by Anna Moneymaker/Getty Images) ·Anna Moneymaker via Getty Images
Treasury Secretary Scott Bessent first introduced the idea a couple of weeks ago when he said he and the president “are focused on the 10-year Treasury” and that Trump is “not calling for the Fed to lower rates.”
They plan to bring down the 10-year yield through policies that promote economic growth, productivity, and the cutting of government spending.
Bessent has dubbed his strategy “3-3-3” — referring to getting the deficit down to 3% of GDP from 6% currently, sustaining growth of 3%, and boosting oil production by 3 million barrels a day.
James Fishback, CEO of investment firm Azoria, said he believes the policies will act to lower inflation and the 10-year yield.
“By reining in inflation and spurring growth, President Trump’s policies will lower the cost of borrowing and free up capital for productive investments,” Fishback wrote in a research note.
“The natural market response is a downward pull on the 10‑year Treasury yield,” Fishback added.
Fishback pointed to the efforts of Elon Musk’s Department of Government Efficiency (DOGE), which he believes will trim wasteful expenditures and reduce the fiscal pressures that can push inflation — and yields — up.
“Less waste means less inflation, which is good news for borrowers,” Fishback said.
Elon Musk, shown with President Donald Trump in the White House, heads the Department of Government Efficiency (DOGE). ·ASSOCIATED PRESS
Influencing the direction of the 10-year could still be challenging. While the Fed’s short-term borrowing rates can influence longer-term rates, there are many other factors that buffet 10-year government bond yields, including the outlook for economic growth, inflation, the supply of Treasurys, and more.
When the Fed began cutting its benchmark rates last fall, longer-term interest rates in the US increased sharply, which led to higher rates on mortgages and other borrowings. That was due in part to investor expectations of higher inflation going forward.
Bond yields move inversely to their prices. Yields will rise when inflation is rising, as investors demand more compensation since inflation erodes the value of a bond.
The 10-year US Treasury yield rose from 3.6% to 4.8% by mid-January before stabilizing at around 4.5%.
The 10-year then went on a wild ride over the past week, with expectations being whipsawed around by inflation readings, expectations for Treasury supply, tariff prospects, and international factors.
It ticked up last Wednesday when a Consumer Price Index (CPI) reading for the month of January showed inflation heating back up. Then it came back down below 4.5% after a separate reading on producer prices offered more assurance about inflation.
Hassett said he is seeing progress. “The 10-year treasury rate has dropped about 40 basis points over the last couple of weeks while we announced our plan to control inflation,” Hassett told CBS. “That saved the American people about $40 billion, just from talking about the stuff that we’re about to do.”
Musk has said on his social media platform X that “as it becomes clear” DOGE “is working, you will see the long-term Treasury bill yields fall.”
Then “all Americans will benefit from lower interest payments on mortgages, small business debt, credit card and other loans.”
Secretary of the Treasury Scott Bessent. REUTERS/Elizabeth Frantz/File Photo ·Reuters / Reuters
Wilmington Trust bond portfolio manager Wilmer Stith said he believes Bessent’s biggest tool in lowering the 10-year bond yield is to lower the deficit and, thus, lower the supply of Treasurys.
“If DOGE really makes a sizable impact and Elon Musk and his team can start paring down billions and billions of dollars, that would be a good thing in terms of this concern of larger Treasury auction supply coming forward,” Stith said.
The Treasury Department indicated that it is not expected to increase the amount of supply of Treasurys, saying in its quarterly refunding statement on Feb. 5 that “Treasury believes its current auction sizes leave it well positioned to address potential changes to the fiscal outlook.”
“I think that’s going to give comfort,” said Stith, who believes the yield on the 10-year could drop as low as a range of 4.25% up to 4.5%.
Ed Yardeni, chief investment strategist and president of Yardeni Research, agrees that getting government spending under control will be key in keeping a lid on bond yields and keeping peace with the so-called “bond vigilantes” who can push yields higher as a way of forcing government action.
“The Bond Vigilantes are biding their time, waiting to see how much the Trump administration can slow the increase in federal spending because of the efforts of the DOGE boys,” Yardeni wrote in a note. “If they don’t deliver enough spending cuts, there could be a gunfight at DOGE City, with the Bond Vigilantes shooting holes in the Trump administration’s fiscal agenda, including the extension of his tax cuts.”
Investors could demand greater yield for their long-term bond investments if they think the value of their investment will be eroded by inflation over the term.
One wild card with Trump’s policies in terms of how they could affect inflation and yields is trade — and Trump’s promises of widespread tariffs.
While the duties on imports could raise revenue, some economists have warned they could be inflationary and push up borrowing costs. Others have noted they could hurt growth depending on how countries respond.
Lawrence Gillum, chief fixed income strategist for LPL Financial, noted the key will be monitoring the balance between risks to growth — which would push yields lower — and inflation risks that would push yields higher.
“Tariffs could initially drive a lower trading range for rates through safe-haven flows, but any significant escalation could eventually push yields higher if tariffs prove inflationary,” Gillum said.
Matt Luzzetti, chief US economist for Deutsche Bank, also noted that tax cuts might make it challenging to bring the deficit down, even with sizable spending cuts.
One way the Treasury could help push down yields, he added, is to boost demand for US Treasuries by making purchases of US Treasuries a condition of tariff negotiations. He said that could also work to help broader trade goals if it led to dollar appreciation and smaller US trade deficits.
Luzzetti also pointed to the idea of revaluing the gold holdings on the Fed’s balance sheet and marketing them to market, a step that he estimates would result in a write-up of over $750 billion that could be used to finance spending.
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. Follow Jennifer on X and on Instagram.
