Focus on the Treasury interest rates, not Fed rates

Watch out for interest rates. Not the short-term rates controlled by the Federal Reserve. Barring an unforeseen financial crisis, they're not going anywhere, especially not after the jump in inflation reported by the US government.

- Jeff Sommer

Instead, pay attention to the 10-year Treasury yield, which has been bouncing around since the election from about 4.8 to 4.2 per cent. That's not an unreasonable level over the last century or so.

But it's much higher than the 2.9 per cent average of the past 20 years, according to FactSet data. At its upper range, that 10-year yield may be high enough to dampen the enthusiasm of many entrepreneurs and stock investors and to restrain the stock market and the economy.

That's a problem for the Trump administration. So the new Treasury Secretary, Mr Scott Bessent, has stated outright whatis becoming an increasingly evident reality. "The President wants lower rates," he said in an interview with Fox Business. "He and I are focused on the 10-year Treasury." Treasuries are the safe and steady core of many investment portfolios. They influence mortgages, credit cards, corporate debt and the exchange rate for the dollar. They are also the standard by which commercial, municipal and sovereign bonds around the world are priced.

What's moving those Treasury rates now is bond traders' assessments of the economy including the Trump administration's on-again, off-again policies on tariffs, as well as its actions on immigration, taxes, spending and much more.

Mr Bessent and President Donald Trump would like those rates to be substantially lower, and they're trying to talk them down. But many of his policies are having the opposite effect.

Mr Trump needs the bond market on his side. If it comes to disapprove of his policies, rates will rise, and the economy along with the fortunes of the Trump administration - will surely suffer.

TREASURY RATES, NOT FED RATES