Marketplace Podcast Summary: “Trump’s Bid to Take Down the 10-Year Yield”
Hosted by Marketplace | Release Date: February 7, 2025

Introduction: The Trump Administration’s Strategy to Lower Bond Yields

In this episode, Marketplace host Kyle Ryssdal explores President Trump's administration's unconventional approach to influencing the economy by targeting the 10-year Treasury yield. Instead of focusing solely on Federal Reserve policies, the administration aims to reduce bond yields directly to stimulate economic growth.

“The White House is just going to work on bringing bond yields down,” explains Treasury Secretary Scott Besant (00:57). This strategy is rooted in the belief that lower yields can have a ripple effect across various sectors of the economy.

Understanding the 10-Year Treasury Yield and Its Economic Impact

Brian Railing, Head of Global Fixed Income Strategy at Wells Fargo Investment Institute, emphasizes the significance of the 10-year Treasury yield:

“If the 10-year yield goes lower then mortgage rates are going to go lower. So people are going to be able to better afford homes,” Railing explains (02:08). The yield on this bond influences a wide range of interest rates, including those for credit cards, car loans, and mortgages, directly affecting consumer spending and investment.

Methods to Lower the 10-Year Yield: Energy Dominance vs. Deficit Reduction

The administration’s strategy to lower yields involves two primary avenues:

1. Energy Dominance and Inflation Control
   Besant states, “With the President's policies of energy dominance, deregulation and non-inflationary growth, I think that the 10-year is going to naturally come down,” (02:40). By increasing domestic oil production, the administration aims to reduce energy prices, thereby lowering inflation—a key driver of higher bond yields.

   However, skepticism exists among economists. Ken Kutner, Professor of Economics at Williams College, points out the long-term implications:

   “You can reduce the oil price, but then once it stabilizes, then inflation is kind of back where it started,” Kutner remarks (03:09).

2. Deficit Reduction
   An alternative strategy involves shrinking the federal deficit. Railing suggests, “If the government isn't as desperate to borrow money, it won't have to offer as high a return on bonds to get people to lend to it,” (03:26). Lower borrowing needs could reduce yields as the demand for bonds decreases.

   However, achieving deficit reduction poses significant challenges. Gila Ba, Chief Fixed Income Strategist at Janney Montgomery Scott, expresses doubt:

   “I am skeptical that cost cuts will be large enough to make a material difference in the size of the budget deficit,” Ba states (04:05). The administration's plans for substantial tax cuts could undermine efforts to reduce the deficit, making this approach arduous.

Economic Productivity: A Beacon of Growth Amidst Challenges

Shifting focus, Marketplace highlights the ongoing improvement in worker productivity, which has seen a 1.2% annualized increase in the fourth quarter of the previous year—marking the ninth consecutive quarter of growth.

Higher productivity correlates with increased incomes, improved standards of living, and a potential check on inflation. Justin Ho reports from a machine shop in Simi Valley, California, showcasing how training and technology investments are driving productivity gains.

Case Studies: Enhancing Productivity Through Training and Automation

1. Simi Valley Machine Shop:
   Liz Valdez, a student transitioning from waiting tables to a skilled machinist, illustrates the impact of training programs on workforce productivity. Agar Linskop, the class instructor, notes,
   “Hiring someone who can hit the ground running improves productivity because it can help a business boost output without sacrificing much time,” (05:37).

2. Argonaut Manufacturing Services:
   Wayne Woodard, CEO, discusses the integration of automated filling lines to minimize human error and increase production efficiency. “Automating it helps take human error out of the equation, which means fewer mistakes and more product,” Woodard explains (06:36). However, this shift may lead to reduced employment opportunities as fewer workers are needed.

3. Harmony Group Accounting Firm:
   Matt Hettrick focuses on enhancing productivity through employee retention and professional development rather than automation. “We find that that's amazing for retention. Because what we're saying to our staff is, hey, you come here. We're going to treat you like professionals,” Hettrick emphasizes (07:58). This approach allows the firm to handle more clients without increasing prices, thereby boosting revenue and enabling higher wages for employees.

Challenges for Small Businesses: The Case of Ruby Fruit

The episode also delves into the struggles of small businesses amid economic fluctuations. Mara Herpgersman and Emily Biligis from Ruby Fruit, Los Angeles' first lesbian bar since 2017, share their journey of opening and facing adversity.

Mara states,
“When you lose a week of sales, which we did because of the fires, there was no money coming in. And for us, because we have no reserves, when no money comes in, you don't have any money,” (11:00).

Facing increased operational costs and unforeseen events like fires and economic slowdowns, Ruby Fruit temporarily closed its doors—a testament to the precarious nature of small business sustainability.

Market Insights and Future Outlook

The episode concludes with a brief overview of the stock market and bond yields, highlighting Honeywell's plans to spin off divisions and Super Micro Computer's advancements in AI servers. The discussion underscores the interconnectedness of corporate strategies, technological advancements, and broader economic indicators.

Kyle Ryssdal wraps up by preparing listeners for upcoming economic reports, particularly revisions to the unemployment rate and labor force statistics, emphasizing the importance of accurate data in understanding the labor market.

Conclusion

This episode of Marketplace provides a comprehensive examination of the Trump administration's unconventional strategy to influence the 10-year Treasury yield and its broader implications for the economy. Through expert insights, case studies, and real-world examples, listeners gain a nuanced understanding of how policy decisions, productivity advancements, and small business challenges intertwine to shape the economic landscape.

Notable Quotes:

• Scott Besant: “The White House is just going to work on bringing bond yields down.” (00:57)
• Brian Railing: “If the 10-year yield goes lower then mortgage rates are going to go lower.” (02:08)
• Ken Kutner: “You can reduce the oil price, but then once it stabilizes, then inflation is kind of back where it started.” (03:09)
• Gila Ba: “I am skeptical that cost cuts will be large enough to make a material difference in the size of the budget deficit.” (04:05)
• Agar Linskop: “Hiring someone who can hit the ground running improves productivity.” (05:37)
• Matt Hettrick: “We find that that's amazing for retention.” (07:58)
• Mara Herpgersman: “When no money comes in, you don't have any money.” (11:00)

For more insights and detailed analyses, visit Marketplace.org.