Don't count on Fed rate cuts to reduce long-term bond yields

Trying to force them down will cause more problems than it solves

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The Fed has less influence on longer-term bond yields than short-term.

(AP)

There's no such thing as a sure thing in financial markets, but some things come pretty close.

One of them is the proposition that there will be more interest-rate cuts next year-and another is that these reductions will have little to no effect on long-term rates.

First, the cuts. US Federal Reserve Chair Jay Powell may have presided over his last announcement of a decrease, but odds are his successor will cut rates further next year. It's not just that President Donald Trump wants lower interest rates, which not only boost the stock market and credit offtake, but make servicing the national debt cheaper. It's that there are financial risks in the current environment, in which rates are high after a long period of being exceptionally low: Getting rates back down may help the US avoid a credit crisis.

But the government and financial markets may be in for a rude awakening. Even if (when?) the Fed brings down short-term rates, the 10-year US Treasury bond yield will almost certainly not go down very much-at least not without significant financial repression.