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Trump’s Strategy to Lower Borrowing Costs Without Fed Intervention
The Trump administration has set its sights on lowering 10-year Treasury yields rather than pressing the Federal Reserve for interest rate cuts. According to Treasury Secretary Scott Bessent, this strategy aims to reduce borrowing costs through policies that address inflation and encourage economic growth.
With a focus on expanding the energy supply, making the 2017 Tax Cuts permanent, and reducing the fiscal deficit, the administration believes that long-term interest rates will naturally decline. This article explores Trump’s approach, its potential impact on the economy, and what it means for businesses and everyday Americans.
Why the Focus on 10-Year Treasury Yields?
The 10-year Treasury yield is a critical economic indicator. It influences:
Mortgage rates – affecting home affordability
Corporate borrowing costs – impacting business growth
Government debt expenses – shaping fiscal policy
Unlike the Federal Reserve’s benchmark short-term rate, which primarily affects money markets, the 10-year yield determines long-term borrowing costs. Trump’s economic team believes that if inflation decreases and the fiscal deficit shrinks, long-term interest rates will decline naturally.
Scott Bessent: “He [Trump] is not calling for the Fed to lower rates. He and I are focused on the 10-year Treasury.”
Energy Expansion as an Inflation Solution
A key pillar of this economic strategy is energy expansion. The administration argues that increasing domestic oil production will lead to:
✅ Lower gasoline and heating oil prices
✅ Reduced inflationary pressure on working-class Americans
✅ Higher consumer confidence and economic stability
Bessent states that energy prices significantly shape long-term inflation expectations, particularly for the working class. If fuel costs drop, people save money, leading to greater financial optimism.
“If we can get gasoline back down, heating oil back down, then those consumers not only will be saving money, but their optimism for the future will help them rebuild from the recent years of high inflation.”
This approach contrasts with the previous administration’s focus on green energy investments. Instead, Trump aims to boost oil production by 3 million barrels per day, reinforcing his "3-3-3 economic plan" (which we’ll discuss shortly).
Making the 2017 Tax Cuts Permanent
Another major priority is making the 2017 Tax Cuts and Jobs Act permanent. Set to expire at the end of 2025, these tax cuts:
Lowered corporate tax rates from 35% to 21%
Increased standard deductions for individuals and families
Offered new business deductions to encourage investment
Bessent claims that by locking in these tax cuts, the U.S. economy will remain the world’s top performer in terms of growth. Some Republican lawmakers have proposed temporary extensions, but Trump’s team insists on full permanency.
“President Trump has a mandate… and one of the big things that this administration wants to do is make the 2017 Tax Cuts and Jobs Act permanent.”
Trump’s "3-3-3 Economic Plan"
Bessent reinforced his commitment to Trump’s "3-3-3" economic plan, which includes:
📉 Reducing the fiscal deficit to 3% of GDP (currently above 6%)
🛢️ Increasing oil production by 3 million barrels per day
📈 Sustaining economic growth at 3% annually.
Why This Matters:
Lowering the deficit could ease pressure on Treasury yields.
Boosting oil production helps control inflation.
Sustained growth attracts investment and strengthens the job market.
According to Bessent, government spending under Biden’s administration temporarily fueled expansion, but Trump’s team aims for private-sector-led growth, driven by capital investment and reshoring manufacturing jobs.
What This Means for Markets and Consumers
🔹 For Homebuyers: Lower 10-year yields mean cheaper mortgage rates, making homeownership more affordable.
🔹 For Businesses: Reduced borrowing costs encourage investment and expansion.
🔹 For Investors: A stronger U.S. economy could boost stock markets while a stable fiscal outlook reassures bondholders.
🔹 For Everyday Americans: Lower energy costs and tax cuts could improve financial stability and increase disposable income.
However, some economists question the feasibility of these policies. ING analysts noted:
“The latest Trump administration angle is for rates to be pushed lower through downward pressure on the 10-year yield, through lower inflation and a lower fiscal deficit. Achieve that, and we’d agree. But achieve it first.”
Conclusion: A Market-Driven Approach to Lower Rates
Rather than directly pressuring the Federal Reserve, Trump’s administration is taking a market-driven approach to lowering borrowing costs. By reducing inflation, increasing energy production, and making tax cuts permanent, they hope to naturally bring down the 10-year Treasury yield—which in turn lowers rates on mortgages, corporate loans, and government borrowing.
While the effectiveness of this strategy remains to be seen, it signals a shift from past economic policies that relied heavily on Federal Reserve intervention. The coming months will reveal whether these policies can truly achieve their goals.
FAQs
1. Why is Trump focused on lowering 10-year Treasury yields instead of Fed rate cuts?
The administration believes that inflation control and deficit reduction will naturally lead to lower long-term interest rates without needing Federal Reserve intervention.
2. How does energy expansion impact inflation?
Increased oil production lowers fuel prices, which reduces transportation and manufacturing costs, ultimately easing inflation.
3. What is the "3-3-3 economic plan"?
It refers to reducing the fiscal deficit to 3% of GDP, increasing oil production by 3 million barrels per day, and sustaining 3% economic growth.
4. Will the 2017 tax cuts become permanent?
Trump’s administration is pushing for permanent extensions, arguing that they will boost long-term economic growth.
5. How could this strategy affect mortgage rates? If 10-year Treasury yields drop, mortgage rates could decline, making homeownership more affordable.
Disclaimer
The information provided in this article is for general informational purposes only. It is not intended to be financial advice and should not be construed as such. Always consult with a qualified financial advisor before making any investment decisions. The author and publisher are not liable for any financial losses or damages that may result from the use of this information.