The more "talkative" Trump is, the less likely Powell is to cut interest rates.

Source: Jin10

As the saying goes, a person's biggest enemy is oneself. When it comes to the Federal Reserve and interest rate issues, Trump undoubtedly made his situation much more difficult.

Trump has repeatedly attacked Federal Reserve Chairman Powell, including common taunts and insults akin to those of an elementary school student, making it nearly impossible for Powell and his colleagues to cut short-term interest rates in the meeting held in the early hours of Beijing time the next day, even if they had such an idea.

Any rate cut measures are highly likely to be seen as yielding to pressure from the White House. It's hard to imagine that doing so would result in anything other than damaging the Federal Reserve's reputation and the confidence in the U.S. Treasury market. A few weeks ago, rumors sparked by Trump's own remarks that he might attempt to "fire" Powell were enough to trigger a collapse in the bond market.

At this stage, the financial market believes that the Federal Reserve will not only maintain short-term interest rates stable at this week's meeting but is also likely to do so at the meeting next month. The market believes that the Federal Reserve may not cut interest rates until July, and even then it may only be by 25 basis points.

If that's the case, the Fed may need to brace for an escalation of anger from the U.S. president. But then the president's attack on the Fed could in turn delay the date of the rate cut even further. This is not because of the Fed's stubbornness, but because Powell knows he needs to reassure bond investors that an independent Fed will guard their investments and protect the value of their money. **

If he cannot achieve this, US bonds may not attract as many investors in the future. No one wants to watch their money go up in smoke.

Ironically, some financial data is starting to move in the direction that Trump hopes for, but perhaps not for the reasons he claims. For example, inflation expectations are declining. The five-year inflation expectations in the bond market, also known as the breakeven inflation rate, have recently fallen to 2.33%, a significant improvement compared to the level of over 2.6% in February.

The main reason is: Trump's large-scale tariff measures on April 2 caused economic turmoil and uncertainty.

The Atlanta Federal Reserve has cut its real-time forecast for second-quarter economic growth by more than half in just a few days, from 2.4% to 1.1%. According to the Institute for Supply Management (ISM), manufacturing contracted for the second consecutive month in April, while the service sector continues to expand.

However, this data showing economic slowdown has not been very helpful to the bond market. Trump's angry accusations against the Federal Reserve and interest rate issues, along with his upcoming appointment of Powell's successor next year, have made investors anxious. For obvious reasons, overseas investors may also be selling bonds.

Currently, the yield on the 10-year Treasury note is around 4.33%, and the 30-year fixed-rate mortgage rate, which is closely related to the yield on the 10-year Treasury note, is 6.76%, which is higher than last summer.

Trump needs this interest rate to drop significantly. This is the key to revitalizing the real estate market, where many homeowners refuse to move because they cannot find fixed-rate loans like before (when interest rates were at 3% or 4%).

Analysts at JPMorgan believe that the real estate market will not truly rebound unless the 30-year fixed mortgage rate falls to 5%.

To achieve this, the bond market must restore confidence in the independence of the Federal Reserve. The last time the average interest rate for a 30-year fixed-rate mortgage was 5%, the yield on the 10-year U.S. Treasury was 2.6%. If Trump wants to help himself, he could stop talking about the Federal Reserve.