Long US Bonds Fall as Threat to Fed’s Cook Spurs Inflation Worry

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Long US Bonds Fall as Threat to Fed’s Cook Spurs Inflation Worry.

treasuries & bonds :: 2025-08-26 :: source - bloomberg

By Ruth Carson, David Finnerty and Alice Gledhill

(Bloomberg) -- Long-dated US Treasuries fell as President Donald Trump’s efforts to oust Federal Reserve Governor Lisa Cook deepened concern about the central bank’s independence and its ability to keep inflation in check.

The yield on 30-year bonds rose as much as five basis points to 4.94%. The Bloomberg Dollar Spot Index pared losses and was down 0.1%.

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While the moves were relatively small, investors and strategists were speculating in their morning trading notes that price pressures may heat up if Trump succeeds in replacing Cook with a policymaker more inclined to lower borrowing costs. The President has repeatedly complained that Fed Chair Jerome Powell and his colleagues have been too slow to cut rates.

Trump’s actions are a reminder that the US administration “remains unconventional and unpredictable,” said Andrew Ticehurst, senior rates strategist at Nomura Australia Ltd. The market is concerned the Fed board could become “stacked with doves.”

The attack on Fed independence has raised alarm from Wall Street, with Deutsche Bank AG strategists warning that 30-year yields could climb by more than half a percentage point should Trump succeed in dismissing Powell before his term ends in May.

Trump sought to remove Cook following allegations she falsified documents on a mortgage application. Cook said she will not resign and disputed Trump’s authority to fire her.

The push to dismiss Cook “is a good reminder that no institution in Washington can insulate itself from Trump’s bullying,” said Sarah Binder, political science professor at George Washington University. “Nor are claims of ‘independence’ sufficient to protect the Fed from Trump’s ambitions. The Fed needs defenders, especially bond traders.”

What Bloomberg Strategists Say

“The more the Fed cuts rates, the greater the threat that longer-dated yields will stay higher. It’s one thing to loosen policy in the face of well-entrenched disinflation, but quite another when price increases are running above target inflation.”

—Ven Ram, Macro Strategist. Click here to read the full analysis.

As part of his campaign to force Powell to stand down early, Trump appointed Council of Economic Advisers Chairman Stephen Miran, a long-time supporter, to serve the expiring term of Fed Governor Adriana Kugler, who resigned early this month.

Two-year yields, which are among the most sensitive to monetary policy, fell amid speculation the Fed will cut interest rates as soon as next month. The gap between five and 30-year US yields widened to as much as 116 basis points — the steepest since 2021.

While the Fed has yet to lower borrowing costs this year, Powell used his speech at the Jackson Hole symposium last week to indicate a rate cut may be warranted to support the labor market. On Monday, Federal Reserve Bank of New York President John Williams said the era of low neutral interest rates “appears far from over.”

Simmering tensions

The latest development comes as tensions continue to simmer over the US budget deficit after the House passed a $3.4 trillion fiscal package that cuts taxes and curtails spending on safety-net programs. Traders will be watching to see how this week’s Treasury auctions, which include five- and seven-year tenors, are received by market participants.

When S&P Global Ratings recently affirmed the AA+ credit score of the US, it warned that the country’s ratings “could come under pressure if political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking or independence of the Federal Reserve.”

After falling sharply in the first half of the year, the dollar has largely stabilized since June. But Cook’s removal would be negative for the currency, said Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney.

“It further challenges the independence of the FOMC that underpins the safe haven status of the dollar, which can in turn lead to more dollar selling,” she said.

--With assistance from Masaki Kondo, Matthew Burgess and Rthvika Suvarna.

(Adds 30-year yield level in second paragraph.)