The US bond market rebounded from panic and rose on Wednesday after Treasury Secretary Scott Bessent stated that Jerome Powell is not going anywhere for now.
This phrase instantly shifted the focus from a possible crisis in #ФРС back to what really influences the market — interest rates.
The yield on ten-year bonds rose by more than 3 basis points to 4.368%. Two-year bonds added nearly 2 points, reaching 3.846%, while thirty-year bonds increased by 3 points to 4.94%. One basis point equals 0.01%, and yields rise when bond prices fall.
Scott calms the market with Powell's protection
It all started on Tuesday when Scott Bessent stated on CNBC that he did not see the necessity for Powell's departure. At the same time, Donald Trump, who had criticized the head of the Fed for months and hinted at his imminent resignation, threw out the phrase:
"He will leave soon anyway."
These words noticeably reduced tension in the market. Traders who expected a legal battle or even more chaos finally exhaled.
Now attention has turned to the main event, the Fed meeting on July 29-30. Market participants expect that the rate will remain unchanged, especially in light of inflation rising to 2.7% compared to 2.4% in May.
Trump continues to demand a rate cut, but the Fed has not moved yet. On Tuesday, Powell even avoided discussing the prospects of monetary policy in his speech. He sidestepped the topic of rates and focused on banking regulation.
Meanwhile, the stock market received support from the trade agreement between the US and Japan. The parties set tariffs at 15%, which instilled hope for subsequent deals, including with the European Union. This gave stocks room to grow while the bond market digested the news about Powell.
Trump increases pressure on the Fed
But one should not confuse this temporary calm with a full-fledged truce. At the beginning of the week, Scott Bessent stated on CNBC that he wanted a review of all Fed activities. At the same time, he emphasized that this does not mean Powell should leave.
"I know Jerome Powell. There is no reason to say that he should leave his post now. He has honestly served the country. His term ends in May. If he wants to continue, let him continue. If he decides to leave earlier, that's fine too," Bessent said.
This cannot be called full support, but it is also not a direct signal for resignation. Nevertheless, Donald Trump does not back down. He does not hide that he does not want to see Powell at the Fed, and he has publicly hinted at his possible dismissal more than once.
The new reason for the attack was the massive $2.5 billion renovation of the Fed building — the project significantly exceeded the budget. This became a convenient target for Trump's allies who want to increase pressure.
Nevertheless, Scott insists that a possible audit should take place within the Fed itself, without political interference. According to him, decisions on rates and monetary policy should be made independently, away from external pressure.
"Everything that the Fed has done in recent years has only grown. This is what happens when there is a lack of proper oversight," Bessent added.
In his opinion, Powell is the one who can change the situation now and leave a worthy legacy by reducing the non-core functions of the Fed.
Whether he will do this is an open question. But for now, Powell is not giving any hints of leaving. And if he does not make that decision himself, he cannot be legally dismissed just for disagreements on policy issues.
The next important event is the meeting #fomc next week. Trump demands aggressive rate cuts, but it is unlikely that the Fed will go for it. Most committee members want to understand how tariffs affect inflation before taking any steps.
