5 min read
President Trump is getting much of what he wants and something he definitely doesn’t want: a bond market tantrum that could overshadow the market-friendly parts of his economic plan.
Trump is cruising toward a big political win as his tax bill moves from passage in the House of Representatives to consideration in the Senate. The House measure would make permanent all the individual tax cuts in the 2017 tax-cut bill, which are due to expire at the end of this year. The bill also includes tax breaks Trump touted while campaigning last year, such as the elimination of tax on income from tips and overtime pay. Businesses would get a few tax breaks that could boost investment and profitability.
The Senate will make some changes, such as reducing cuts to Medicaid and to green energy tax credits. But Republicans who control Congress now seem nearly certain to pass a bill by late summer that includes the tax provisions Trump cares most about. And it's happening faster than in 2017, when it took a full year for Republicans to draft the first Trump tax-cut bill.
Trump's trade war is unpopular, but that isn't stopping him from enjoying it. The happy trade warrior has learned that he can command market attention any time he wants simply by threatening a new batch of tariffs. He did that on May 23 by warning of a new 50% tax on imports from the European Union and a 25% tax on Apple's iPhones unless they're made in the United States.
The stock market tanked on the reminder that Trump's tariff bullying may never end. But this may also please Trump. It positions him to be the hero at some point in the future by announcing deals that avert the tariffs and demonstrate his mastery of mayhem. Stocks will rise again.
Read more: The latest news and updates on Trump's tariffs
The bond market, however, is not nearly so manipulable. Early in his presidency, Trump and his Treasury Secretary, Scott Bessent, said keeping longer-term interest rates low was a top priority. They were specifically focused on the 10-year Treasury rate, which anchors most borrowing rates in the US economy.
At the time, rates had been drifting down, and there was reason to think that might continue, bringing some relief to consumers and businesses taking out loans. The rate on long-term Treasury securities is largely set by the markets, not by the Federal Reserve. Trump can't control what the Fed does, which irritates him to no end. But he probably figured he'd be able to claim credit as the longer-term rates most Americans care about began to make mortgages and car loans more affordable.
