Treasury Secretary Scott Bessent has announced a strategy to reduce long-term interest rates, focusing on lowering the 10-year U.S. Treasury yield. His plan, independent of the Federal Reserve’s monetary policy, emphasizes deregulation, tax cuts, and significant reductions in federal spending to stabilize interest rates and ease inflation. Bessent explained that fiscal policy adjustments, such as cutting wasteful government spending, could encourage economic growth without triggering inflation.
Reducing Treasury Yields Through Fiscal Policy
Unlike the Federal Reserve, which controls short-term interest rates, Bessent’s plan seeks to influence long-term borrowing costs by addressing the structural issues in the economy. The administration believes that boosting growth through deregulation and tax reform will naturally lower the 10-year Treasury yield, which is a key benchmark for mortgage rates, credit cards, and other loans.
Bessent pointed to recent rate behavior as evidence that traders recognize reduced federal spending as a positive signal for U.S. debt stability. For example, although the Federal Reserve made several rate cuts last year, the 10-year Treasury yield did not behave as expected. Bessent argued that the market is increasingly influenced by fiscal policy rather than short-term Fed actions.
Partnership with the Department of Government Efficiency
A cornerstone of this plan is the administration’s partnership with the Department of Government Efficiency, led by Tesla CEO Elon Musk. The agency aims to reduce federal waste and unnecessary spending, part of a broader effort to restore market confidence. Press Secretary Karoline Leavitt emphasized that cutting “egregious waste” is key to improving Treasury yields and ensuring long-term economic stability.
Economists have praised the focus on reducing inflation expectations through fiscal discipline, noting that rising inflation risks are tied to recent tariffs and increased goods costs. “The administration wants growth without inflation,” said José Torres, senior economist at Interactive Brokers. “This approach could help reduce inflation risks while preserving monetary policy independence.”
Market Impact and Investor Reactions
Bessent’s plan is unusual in that the Treasury Department is taking an active role in managing long-term rates, something historically left to the Federal Reserve. Investors are cautiously optimistic, with many welcoming a strategy that reduces government debt while promoting growth. Others remain skeptical about how much influence fiscal policies can have on Treasury yields without direct coordination with the Fed.
