On Thursday, May 1st, United States Treasury Secretary Scott Bessent stated that the bond market is signaling for the Federal Reserve to cut interest rates. Bessent, speaking on the Fox Business Channel’s “Maria Morning Show,” mentioned that the two-year bond yield is currently lower than the federal funds rate, indicating that the market believes the Fed should lower rates.
The federal funds rate, set by the Federal Reserve as the benchmark overnight rate, affects interest rates across bonds ranging from three months to ten years. Currently, the Fed’s policy rate is set within a range of 4.25% to 4.5%, while the two-year U.S. Treasury bond yield stood at 3.75% on Thursday.
Financial professionals anticipate that the Fed will not lower rates during the Federal Open Market Committee (FOMC) meeting on May 6th to 7th. However, they are betting on a potential rate cut in June and expect more cuts throughout the year.
Secretary Bessent’s latest comments align with President Trump’s repeated suggestions for the Fed and its chair, Jerome Powell, to lower rates. Trump has publicly criticized Powell multiple times, arguing that the Fed should cut rates to stimulate the economy. Powell, on the other hand, has expressed concerns that tariffs could lead to inflation and has resisted rate cuts.
During a speech at a rally marking his first 100 days in office in Michigan, Trump hinted at dissatisfaction with someone at the Fed, without naming Powell directly, saying, “I have someone in mind at the Fed who I am not thrilled with.” He added that he wants to be very friendly and respectful towards the Fed.
Trump emphasized that one should not criticize the Fed and should let it do its job, but he claimed to have a much better understanding of interest rates than Powell. Bessent had earlier stated that his main focus, along with the President, is on lowering the ten-year bond yield, rather than on the Fed directly. He reiterated this focus on the show on Thursday.
“Since the beginning of the year, especially since January 20th, the ten-year bond yield has significantly declined,” Bessent remarked. “President Trump and I are targeting this curve.”