Long-term U.S. Treasury yields backed off their early highs Wednesday as traders tried to assess the outcome of President Donald Trump attempt to take charge of the Federal Reserve.
The 30-year Treasury yield was less than 1 basis point higher in late trading, yielding 4.912% after earlier trading near the 4.95% level. The 10-year Treasury yield was down more than 2 basis points to 4.234%, after rising above 4.27% earlier. The 2-year yield was lower by 6 basis points at 3.617%, and the spread between the 2-year and 10-year yield touched its widest since April. One basis point is equal to 0.01%, and yields move inversely to prices.
Investors have been preoccupied since late Monday that a Trump-controlled Fed might lower short-term borrowing rates, leaving longer-term yields to rise if the central bank takes it eye away from fighting inflation to accommodate the president.
President Donald Trump took to social media on Monday to say he was firing Federal Reserve Governor Lisa Cook, a voting member of the central bank’s policy-setting Open Market Committee. On Tuesday, the president said he’ll “have a majority very shortly” of his nominees on the central bank’s board of governors as part of his push to the Fed’s short-term interest rate.
In announcing the move to oust Cook, a PhD in economics from the University of California, Berkeley and the first African-American woman to ever serve as a Fed governor, the president cited allegations by Federal Housing Finance Agency Director Bill Pulte that Cook made false statements on applications for one or more of her home mortgages.
Cook is planning to sue Trump over the firing and is filing a lawsuit challenging her removal. Cook’s lawsuit may be filed as soon as today, CNBC’s Steve Liesman has learned.
“President Trump has no authority to remove Federal Reserve Governor Lisa Cook,” Abbe Lowell, her lawyer, said in a statement.
The Fed has said it would abide by any court decision as to whether Trump has the legal authority to remove Cook.
Krishna Guha, the head of the global policy and central bank strategy team at Evercore ISI, warned on Tuesday that Trump risks “a potential riot in the bond market.”
As to the course of the economy this summer, investors are looking ahead to this week’s economic data, including the latest reading for gross domestic product growth rate for the second quarter and July’s pending home sales on Thursday morning.
Friday brings the week’s most important economic number, when the personal consumption expenditures index, the Fed’s preferred inflation gauge, is released before the market opens. That will provide a key update as to whether inflation is moderating or accelerating as a result of the administration’s high tariff policy, and comes less than three weeks before the next Federal Reserve policy meeting, on Sept. 16-17.
