The Financial Times' front page reported that the yield spread and pressure on the Federal Reserve from Trump have stimulated bets on short-term rate cuts, but there is still a possibility of future rate hikes.
The difference between long-term and short-term U.S. Treasury yields widened to its largest level in three years yesterday, as investors expressed concerns about President Donald Trump's move to fire Federal Reserve Board member Lisa Cook (as shown in the figure).
The one-year Treasury yield fell 0.04 percentage points to 3.69%, as investors expected downward pressure on the Fed's policy rate in the near term.
Meanwhile, the 30-year Treasury yield rose by as much as 0.06 percentage points, with the difference reaching 1.25 percentage points, matching the three-year intraday high recorded during market turbulence after Trump announced "Liberation Day" tariffs in April. The 30-year Treasury yield later declined.
Trump said on Monday that he fired Federal Reserve Board member Cook over mortgage fraud charges. Her lawyer, Abby Lowell, said yesterday: "We will sue to challenge this illegal action." They bet that the political pressure on the central bank would lead to lower interest rates in the short term, but future rate increases could result from Fed officials being forced to deal with higher inflation.
This move came after Trump harshly criticized Federal Reserve Chair Jay Powell and called for faster rate cuts, raising concerns about the independence of the Federal Reserve. Trump's threats and the sharp bond selling have drastically affected the U.S. financial markets.
Original: www.toutiao.com/article/1841554471717900/
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