A range of factors can affect longer-term Treasury rates, including expectations for future growth and inflation, as well as the supply and demand for government bonds. Bianchi worries that stubbornly high government budget deficits — which are financed by trillions of dollars of Treasurys — could also lift long-term rates.
Should the Fed cut rates now, llonger-term borrowing costs “would move in the opposite direction, absolutely,” Goodwin said, “because the threat of inflation is so palpable — that move would call their credibility into question.”
Trump said in a social media post this week that there is “virtually No Inflation” and as a result, the Fed should lower its key rate, from its current level of about 4.3%. Many economists expect the central bank will do so this year. But Powell has underscored that the central bank wants to evaluate the impact of Trump’s policies before making any moves.
Inflation has fallen in recent months, dropping to 2.4% in March, the lowest level since last September. Yet excluding the volatile food and energy categories, core inflation was 2.8%. Core prices often provide a better signal of where inflation is headed.
