Fox Business's Larry Kudlow — who served as director of the National Economic Council during Trump's first term — is urging readers not to panic over rising long-term Treasury yields, arguing that the recent climb in the 30-year bond reflects stronger economic growth rather than inflation.

In commentary published by Fox Business, Kudlow noted that more ink has been spilled about the 30-year Treasury in the last couple of weeks than in probably the last 10 years. The bellwether Treasury, he pointed out, is the 10-year note, which has been trading steadily in a range of 4 percent to 5 percent without drawing similar alarm. The intense focus is understandable in one respect: Treasury yields serve as benchmarks for borrowing costs across the economy — the 10-year note, for example, is closely tied to mortgage rates — so sustained moves in long-term rates can pass through to what households and businesses pay to borrow.

Here is the key point, Kudlow argued: the 30-year Treasury bond yield has risen about 35 basis points in recent weeks almost entirely because of a stream of new economic statistics showing a faster, more powerful growth rate — especially in manufacturing and construction, along with advanced technologies.

"It's not about inflation," Kudlow wrote, criticizing news headlines that he said have been "screaming inflation with no good analysis because they just love to keep whacking away at President Trump."

A look at the Treasury rate increases, he said, shows the move is all coming from the real yield, not the inflation component. That decomposition follows standard bond-market arithmetic: a nominal Treasury yield can be split into a real yield plus expected inflation, with the gap between nominal Treasuries and TIPS — the breakeven — read as the market's implied inflation outlook. The inflation component — the CPI breakeven compensation for inflation — has not gone up all year, Kudlow noted, with the 30-year CPI breakeven hovering just above 2.0 percent all year to date.

The pattern is similar at the 10-year point. The market rate for 10-year Treasuries has increased about 50 basis points so far this year, and virtually all of that increase has come from a 50-basis-point rise in the real yield on Treasury Inflation-Protected Securities (TIPS). The expected inflation rate implied by the breakevens has risen by less than 5 basis points. The consumer price index breakeven component that implies inflation has been basically flat, Kudlow said, and the same is true for the 30-year Treasury bond.

What is happening, in Kudlow's telling, is that market rates are being driven up by stronger, 4 percent-type economic growth and are normalizing after the near-zero rates of the financial crisis and Covid — when the Federal Reserve held its policy rate at effectively zero, first from 2008 to 2015 and again from 2020 to 2022 — the product, in his words, of "very bad Federal Reserve policy that Kevin Warsh is going to fix." Warsh is a former Federal Reserve governor whom Trump has picked as his nominee to chair the central bank.

For context, Kudlow likened a 4 percent-plus Treasury yield to the days of President Clinton and Speaker Newt Gingrich, when strong growth was driven by lower capital gains taxes and welfare reform. The economy was booming then, he noted, and the Treasury rate was around 6 percent. "So right now, we're just normalizing," he wrote, adding that there is "an enormous boom."

President Trump, speaking at the White House about the boom from "one big beautiful bill," said: "We've gained so much in the last 16 months like nobody can believe, actually. And not only that, but we have more money being invested in the United States than any country at any time in history. Money is coming in by the trillions."

Trump added that "our nation's economic dominance drives trillions of dollars in investments, creates millions of jobs, and expands access, credit and capital so that every citizen has a chance to achieve what we now hear a lot about the American dream."

"The American dream is alive and well," Kudlow wrote.

Summing up his argument, Kudlow advised readers to ignore the headlines, arguing that interest rates in the bond market are not exploding and that whatever increase has occurred is the result of a stronger-than-expected economy that is normalizing. "And there's nothing to panic over," he wrote, "even though the press loves to whack away at Mr. Trump on almost every topic under the sun."

Source: Fox Business