We find ourselves in what has become a rather familiar situation for 2025 where there is pressure for lower official interest-rates, but bond yields do not play ball. We can start with the former and as so often this year President Trump is making headlines.
President Donald Trump suggested he would fire Scott Bessent if the Treasury secretary doesn’t help secure lower interest rates, a move that is up to the Federal Reserve and not administration officials.
“The only thing Scott’s blowing it on is the Fed,” Trump said Wednesday at a US-Saudi investment event in Washington. “Rates are too high, Scott, and if you don’t get it fixed fast, I’m going to fire your ass. Okay?”
Trump’s remarks — made in a joking tone — underlined the president’s dissatisfaction with the Fed as the White House faces increasing pressure from voters to lower the cost of living. ( Bloomberg)
In a sense that is classic The Donald and he followed it up with something that has become rather a mantra for him.
The president also reiterated that he would love to fire Fed Chair Jerome Powell, calling him “grossly incompetent” and that the official deserves to be sued for his handling of a costly renovation of the central bank’s campus. ( Bloomberg)
This has become a familiar battleground as President Trump rails at “Too Late Powell.” But it is also one where he has failed so far because Jerome Powell is still in position as is Lisa Cook who he has also wanted to fire. Looking ahead President Trump will however be able to choose the Federal Reserve Chair.
Bessent later Tuesday said that interviews were ongoing and that in mid-December Trump would meet with three finalists to make a decision.
The next chair is likely to be named to a 14-year Fed governor term that opens on Feb. 1. ( Bloomberg)
That day cannot come around soon enough for President Trump it would seem. But so far he has failed on two fronts as we have had only 2 interest-rate cuts this year whereas he has looked enviously at the ECB with interest-rates at 2% or half the US. Plus he has failed to remove those he blames.
The Federal Reserve
We can review the situation here via the words of the journalistic mouthpiece for Federal Reserve Chair Jerome Powell.
The Fed minutes underscore what has emerged since the meeting: There may now be a narrow majority of officials (not necessarily FOMC voters) who favor holding steady in December. “Many” is greater than “several.” December is shaping up to be a close call. ( Nick Timiraos)
Actually in many ways it did not need emphasising because people had already been wondering about the possibility of a 6-6 vote next month. So the call is tight and we will find out more later when we get the September employment and non-farm payrolls report. It is more significant than it was as due to the shut down we will only get some of the October data.
BLS will not publish an October 2025 Employment Situation news release. Establishment survey data from the Current Employment Statistics survey for October 2025 will be published with the November 2025 data. Household survey data from the Current Population Survey could not be collected for the October 2025 reference period due to a lapse in appropriations
In the new calendar both the reduced October data and the full November data will come a week after the Federal Reserve policy meeting. This is rather awkward as no doubt they will get a private briefing on the numbers at that point but then their move will hint at a number not yet released.
Bond Yields
This is the main point of issue I think because whilst President Trump may want lower interest-rates for others what to quote the Spice Girls.
I’ll tell you what I want, what I really, really want
Is lower borrowing costs or bond yields for the US government so he can spend more. But as I type this the ten-year yield is 4.14%. But if we look back to the first interest-rate cut on September 18th last year we see that the 0.5% then has been followed by another 1% so 1.5% in total. Yet compared to back then the US ten-year yield is in fact around a quarter point higher! In September 2024 it was mostly between 3.8% and 3.9%..
This ladies and gentlemen is a yield curve shift and it is the biggest one for many years. Sadly the media who you may recall became “instant experts” a while ago seem to have vacated the scene when it has become Gangster Number One. Borrowing for governments has become more expensive just as the establishment view is that interest-rate cuts will reduce the cost of it. So there has been a double-whammy where bond yields have failed to fall and indeed risen. Spending plans will have been set on the basis that bond yields will fall in another establishment fail.
If we stay with the US it is more extreme if we look at the Long Bond or 30-year. In the month that interest-rates were first cut in September 2024 it spent some time below 4% whereas as I type this it is 4.75%
This has been an international trend and in relative terms the biggest mover recently has been in Japan. It’s ten-year yield passed 1.8% earlier and after decades of interest-rate suppression by the Bank of Japan it must be an awful shock. There will be reverberations for US bonds because why will Mrs. Watanabe buy US bonds for yield when she can now get it in Japan? This morning the Japanese equivalent of the Long Bond reached 3.4% so funds which flowed into overseas bond markets are now likely to stay at home.
The economy
Reinforcing the bond yield move has been the US economy. Now we have been on a diet as regards official economic data due to the shut down. But the Atlanta Fed tells us this.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2025 is 4.2 percent on November 19, up from 4.1 on November 17. After recent releases from the US Census Bureau and the US Bureau of Economic Analysis, a decrease in the nowcast of third-quarter real gross private domestic investment growth from 4.9 percent to 4.8 percent was more than offset by an increase in the nowcast of the contribution of net exports to third-quarter real GDP growth from 0.57 percentage points to 0.78 percentage points.
Firstly we have seen it predict quarterly growth of around 1% as we would record it for a while now. The word “normal” gets used a lot by central bankers but they will be skipping the bit that such an economic growth rate has in the past brought interest-rate rises not cuts. I have added on the extra detail because it looks as though both investments and exports are strong reinforcing the theme. The PCE inflation reading is for back in August but at 2.7% it is above target and would in the past have people worried about overheating.
Comment
As you can see the situation is full of contradictions. The view of President Trump completely contradicts his claims about a booming US economy. The latter does seem to be backed up by the Atlanta Fed numbers.This is why people have been unwilling to push bond yields lower as they want a risk premium. Remember the US Federal Reserve is about to change policy to help.
Beginning on December 1, roll over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities……Beginning on December 1, reinvest all principal payments from the Federal Reserve’s holdings of agency securities into Treasury bills.
Yet here we are and whilst we will find out more later this has been one of the clearest trends of 2025.
