With the dramatic change in the financial landscape this week, that’s because the 10-year Treasury yield spiked at almost the same time that then–president Trump proposed a new 10% tariff on all of America’s trading partners. Indeed, investors are understandably alarmed by this unexpected move. Consequently, the purchasing power of the U.S. dollar has significantly declined relative to other currencies.
This jump in the 10-year Treasury yield comes on the heels of Trump’s tariff announcement. The news that first sent market shockwaves soaring. The previous president was the one who first advocated for increased levies. Though he subsequently retreated on this proposal, it appears the harm has been done. The U.S. dollar has slumped more than 3% against a basket of global currencies, signaling a potential shift in investor sentiment away from American assets.
Neel Kashkari, President of the Minneapolis Federal Reserve, suggested that these trends are the opposite of what traditional market forces would suggest. He noted that Treasury yields are going up and the dollar is going down. This powerful combination signals a historic change in investor sentiment about the safety of U.S. investments.
“Normally, when you see big tariff increases, I would have expected the dollar to go up. The fact that the dollar is going down at the same time, I think, lends some more credibility to the story of investor preferences shifting,” – Neel Kashkari
In this brave new world, Kashkari said his main priority has to be inflation expectations—keeping them anchored. He joined other policymakers in highlighting that interest rates are unlikely to change until there is clearer visibility on fiscal and trade policy. But he won’t be voting on the Federal Open Market Committee this year, which sets interest rates. Still, he will have a vote by 2026.
The effects of these market shifts reach well beyond short-term financial measures. Kashkari’s alarm bell should be a wake-up call: America has to be the best country in the world to invest. If not, we would have a permanent trade deficit. And for a long time, investors have viewed America as a haven of safety. Judging by the trends I’m seeing, that may no longer be the case.
“If the trade deficit is going to go down, it could be that investors are saying, OK, America no longer is the most attractive place in the world to invest, and then you would expect to see bond yields go up,” – Neel Kashkari
As market conditions evolve, stakeholders will be watching closely to assess how these trends impact both domestic and global economic stability. The recent developments are yet another reminder of how closely linked trade, the value of our currency, and confidence of investors really are.