Treasury Secretary Scott Bessent has quietly advised President Trump to keep Federal Reserve Chair Jerome Powell in his position. Bessent warned that firing Powell could lead to economic and market turbulence, along with legal and political issues. He emphasized that the Fed’s current plans might include rate cuts later this year, indicating that a conflict with Powell is not necessary. Bessent also pointed out the strong economic performance and favorable market reactions to Trump’s policies as reasons to avoid drastic actions.

Rising Long-Term Yields

U.S. long-term yields are increasing, which is making it harder for the government to fund itself as borrowing costs rise. Bessent is focused on lowering these yields and believes that firing Powell could worsen the situation. For more insights, visit investingLive.com. Considering the push for stability, we believe the risk of a major political shock at the Federal Reserve has diminished. This means that derivative traders should adjust their strategies, reducing the focus on extreme political crisis risks. We should expect a period of lower-than-expected volatility in the upcoming weeks. This situation strengthens the market’s expectation for monetary policy easing later this year. The CME FedWatch Tool shows over a 60% chance of a rate cut by September, making Bessent’s advice clearer for the President. This signals that traders should consider positions benefiting from falling interest rates, such as long positions in SOFR futures.

Impact On Market Volatility

This sense of stability should help lower equity market volatility. The CBOE Volatility Index (VIX) is currently around 13, and this news takes away a factor that could have pushed it above 20. Selling VIX call options and other short volatility strategies looks more appealing now. Typically, challenges to central bank independence lead to rising bond yields, making Bessent’s intervention noteworthy. The 10-year Treasury yield has recently been concerning, trading above 4.2%. Actions that calm this market are crucial to managing government borrowing costs, so we can be more confident that long-term yields are likely to stabilize soon. The case against conflict is further supported by a robust economy, shown by the addition of 272,000 jobs in May. A thriving economy strengthens the current monetary leadership’s credibility, making any change seem more disruptive. This helps us believe that market directions will be shaped more by economic data than political changes. Create your live VT Markets account and start trading now.

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