MW The bond market is sending a clear signal about Fed independence
By Christine Idzelis
President Trump criticized Fed Chair Powell again on Thursday after the central bank decided to hold its policy rate steady
Federal Reserve Chair Powell's term ends in May, and investors are waiting for President Donald Trump to announce his replacement.
The U.S. bond market doesn't seem all that anxious about the Federal Reserve's independence in the face of political pressure from President Donald Trump to ease monetary policy.
The Fed announced on Wednesday that it was holding its benchmark interest rate steady, as Wall Street expected, after reaching broad agreement on the Federal Open Market Committee on the decision. Wall Street has been on alert for fractures within the committee, given persistent pressure from Trump toward Fed Chair Jerome Powell for a more aggressive pace of rate cuts.
The president wrote in a social-media post Thursday that "Jerome 'Too Late' Powell again refused to cut interest rates," saying he has "absolutely no reason to keep them so high" and claiming that the Fed chair was hurting the country as inflation is no longer a problem.
With Powell's term as chair ending in May, investors anticipate Trump will soon nominate a Fed chief inclined to more aggressively pursue rate cuts this year. But the bond market isn't too unsettled by the political heat from the White House, as Powell drove home the point Wednesday that central bank makes its decisions about monetary policy - including whether to lower rates - based on economic data and its dual mandate of stable prices and maximum employment.
"The bond market, to me, is in no way flashing some sort of a yellow warning that there's concerns about Fed independence," said Jeffrey Palma, head of multiasset and macro research at Cohen & Steers, in an interview. It seems the Fed's policy committee is committed to "making sure that there is not some sort of policy mistake that happens" as a result of political pressure, he said.
The Fed's policy statement Wednesday showed two of the 12 voting members on the FOMC dissented on the central bank's decision to maintain its benchmark rate in the current target range of 3.5% to 3.75%. The two dissenters, Trump-appointed governors Stephen Miran and Christopher Waller, preferred to lower the federal-funds rate by a quarter of a percentage point.
"Interestingly, they were only pushing for quarter-point cuts," said Palma, as opposed to the more aggressive half-point cut favored by Miran at the Fed's prior policy meeting in December.
Miran served as Trump's chair of the Council of Economic Advisers before his appointment to the Federal Reserve Board, while Fed governor Waller has been cited among the candidates to replace Powell as chair.
"There was broad support on the committee for holding today," Powell said during his press conference Wednesday. Powell also indicated that he was "strongly committed" to the Fed maintaining its independence in setting monetary policy, adding: "So are my colleagues."
The bond market has kept relatively calm amid the tensions. A gauge of volatility in the U.S bond market, the ICE BoAML MOVE Index, is down this month to around levels last seen in 2021. Although the index rose around 2% on Wednesday, it remained below its 50-day moving, ending the session at 57.43.
Investors are also keeping an eye on long-term Treasury yields due to upward pressure stemming from risks such as concerns over the U.S. government's growing borrowing needs to help fund its large deficit or the Fed potentially cutting rates for political reasons.
Bond yields and prices move in opposite directions, so a jump in rates can lead to losses.
The yield on the long-term 10-year Treasury bond BX:TMUBMUSD10Y was edging down about 1 basis point on Thursday morning to around 4.24%, remaining below its 52-week high seen last February, according to Dow Jones Market Data. Although the 10-year Treasury yield rose Wednesday, its level was ultimately little changed by the Fed's rate decision, FactSet data show.
In Palma's view, "fair value" on the 10-year Treasury bond is probably a yield closer to 4.5%. That's not because of Fed independence concerns, but because it appears that economic growth in the U.S. may accelerate with "a bit more fiscal stimulus" after ending 2025 on a "strong note," according to Palma.
That could keep inflation elevated, while investors will be alert for how Trump will reshape the Fed. The market is being "very vigilant," said Josh Hirt, senior economist at asset-management firm Vanguard, in an interview, adding that it isn't currently signaling strong concern that the Fed will lose its independence.
-Christine Idzelis
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(END) Dow Jones Newswires
January 29, 2026 13:26 ET (18:26 GMT)
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