Every time Jerome Powell talks about interest rates, the markets wait with bated breath.

Will he cut rates? Pause them? Raise them?

The FOMC announcements are a never-ending song and dance that can put traders and markets on edge.

But as I’ve said before: Rate cuts aren’t the whole story.

And yesterday, Treasury Secretary Scott Bessent confirmed what I’ve been saying all along. And that is – it’s actually the 10-year treasury yield that’s the REAL driver of the economy.

Bessent’s exact words…

Treasury Secretary Scott Bessent said the priority is to fix the affordability crisis in a wide-ranging Bloomberg interview.

He wants to lower interest rates. However, he doesn’t want to put pressure the Fed to cut short term rates.

Instead, he’s focused on the 10-year rate. He believes President Trump’s agenda on energy, deregulation, and reining in fiscal excesses should help spur non-inflationary growth, and that should allow the 10-year rate to fall naturally.

He does not believe tariffs are inflationary, though there could be a small, one-time price adjustment. He also believes that China could actually end up eating any tariffs because its economy is in recession.

Lastly, the Treasury can calibrate what the debt policy should be once there is more clarity on how the president’s agenda is working.

With respect to the Fed and Chair Powell, Bessent said they met and had a good discussion. He believes Powell will do the right thing so there will be no need for criticism.

The best thing that the government can be done for economic predictability is to make the tax cuts permanent.

The Basics of Bond Yields

Here’s the thing – when people talk about the 10-year rate, they’re talking about what the government has to pay to borrow money for 10 years.

Think of it like this: if you’re lending money to your most reliable friend (in this case, Uncle Sam), what return would you want on your money?

Let me break this down with real numbers, because this is important. Right now, that 10-year yield is sitting south of 4.5%.

That means if you put $100,000 into these bonds, you’re guaranteed to get close to $4,500 a year.

Guaranteed.

What This Means for Your Money

Here’s where the rubber meets the road.

The Fed can cut rates all they want, but if the 10-year yield keeps climbing, we’re going to see some serious portfolio shuffling.

Growth stocks, especially tech stocks that promise profits way out in the future? They get hit the hardest.

That’s why Bessent is focused on the bringing down the 10-year yield.

YOUR ACTION PLAN

As Donald Trump continues to install his policies in 2025, it’s worth paying attention to the 10-year yield going forward. Overall, it will be the most important indicator for the health of the economy.

But how do you trade based around this key indicator?

First, start with diversification. Which is exactly what we show traders how to do in The War Room.

Higher yields mean better entry points. Also focusing on higher quality dividend stocks since they tend to weather any storms better.

To get all our trades that fit this criteria and strengthen your portfolio, I invite you to join us in The War Room today.

Click here to learn more.

FUN FACT FRIDAY

Tariffs revenue impact then vs. now – Before the introduction of income tax in 1913, tariffs were the primary source of revenue for the U.S. government. The Tariff Act of 1789 was the first major law passed by the U.S. Congress, designed to raise revenue and protect domestic industries.

• 1790s – 1860s: Tariffs made up 80–95% of total federal revenue.
• 1870s – Early 1900s: Tariffs still accounted for over 50% of federal revenue.
• 1910: Tariffs contributed about 30% of federal revenue as other taxes, like excise taxes, became more significant.
• 1913: The 16th Amendment was ratified, allowing for a federal income tax, significantly reducing the reliance on tariffs.
• By the 1930s: Tariffs contributed less than 10% of federal revenue.

Today tariffs make up less than 2% of federal revenue, with income and payroll taxes being the dominant sources. This is due to several factors including the income tax in 1913, a more globalized economy, and the rise of payroll taxes for Social Security and Medicare.