Trump Flip-Flops, Says "Let Powell Decide on Rates"; U.S. Treasury Yield Surge Puts Pressure on New Fed Chair

May 20 — Fueled by escalating U.S.-Iran tensions driving energy prices higher, a sell-off in U.S. Treasuries, and mounting concerns over the federal fiscal deficit, the yield on the U.S. 30-year Treasury bond has surged to its highest level since 2007, stoking market anxieties about inflation and prolonged high interest rates. Kevin Wash, set to be sworn in as Federal Reserve Chair later this week, faces dual pressures: the White House has repeatedly pushed for interest rate cuts, while most Federal Reserve policymakers favor keeping rates elevated. In a recent interview, President Trump stated he would “let Wash do what he wants to do,” calling him “very talented.” But just last month, Trump publicly said he would be disappointed if Wash failed to cut interest rates immediately after taking office. Analysts see this shift as signaling the White House is starting to “prepare an exit strategy” to avoid cutting rates in June. Economist Derek Tang noted Trump appears to understand that Federal Reserve interest rate decisions are made collectively by the Federal Open Market Committee (FOMC), not just by the Chair alone. “This has given Wash some maneuvering room at the start of his tenure at the Federal Reserve,” Tang explained. Currently, calls for a short-term rate cut within the Fed have faded sharply. With energy prices rising, U.S. inflationary pressures have reignited, the labor market remains solid, and market expectations for a rate cut this year have continued to cool. Former Federal Reserve economist Julia Coronado added: “There’s practically no sign of deflation right now, and the conflict with Iran will further strain the country’s fiscal situation. The path to a rate cut may require navigating a recession first.” Michael Feroli, chief U.S. economist at JPMorgan Chase, also pointed out that in the current environment, Wash’s efforts to steer the FOMC toward a rate cut this year will be far more challenging. Additionally, Jerome Powell, who is set to step down as Fed Chair, is expected to remain on the Federal Reserve Board — a move markets believe will limit Wash’s ability to quickly reshape policy direction.