The yield on the 10-year U.S. Treasury note surged on Monday. It ticked up, 6 basis points higher to 4.391%. The markets were spooked in a knee-jerk reaction to President Donald Trump’s latest attacks on Federal Reserve Chair Jerome Powell. They took seriously the implications of this critique for economic policy. At the same time, the 2-year Treasury yield lost 2 bps to 3.779%, showing different market conditions.
This increase in the 10-year yield has been unfortunately timed with continued ambivalence around tariffs and trade policy, adding to investor nervousness. The Easter holiday meant bond markets closed on Friday. When they reopened on Monday, traders rushed back to their screens, swiftly trading their way to a whole new set of winning positions.
Gold prices were a yardstick of the changing economic prospects, reaching an all-time high above $3,400 an ounce. It was the weaker dollar that was the major force pushing gold prices higher. Investors returned to the safe-haven, fearful over the prospects of global economic growth due to Trump’s new tariff regime.
Investors are worried—very worried—about tariffs. They are carefully watching how these tariffs will affect domestic and foreign markets. Given all this context, Trump’s repeated calls for Powell to be fired and oust of the Federal Reserve have raised eyebrows across the economic and political landscape.
“If we had a Fed Chairman that understood what he was doing, interest rates would be coming down, too.” – Donald Trump
Trump’s comments reflect his ongoing dissatisfaction with the Fed’s approach to monetary policy. He is still the go-to guy for radical declarations about interest rates and economic mismanagement. Market participants are already looking to see how his comments will impact future actions by the Federal Reserve.
Jerome Powell has acknowledged the complexities involved in setting monetary policy, stating, “If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.” Let his comments remind us to proceed with caution as we approach a fiscal cliff. Further, he highlights the importance of balancing maximum employment with stable prices.