Powell Wants To Cut Rates—But The Bond Market Isn't On Board

The Fed may be ready to cut in September, but the bond market? Not exactly throwing a party. Macro strategist Jim Bianco, president of Bianco Research, warned that the bond market—particularly long-dated Treasuries—is sending a clear message: It doesn’t want these rate cuts.

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In an interview with Bloomberg TV on Tuesday, Bianco indicated that despite Fed Chair Jerome Powell's dovish pivot at Jackson Hole, where he strongly signaled a shift toward prioritizing labor market stability over inflation, the long end of the yield curve isn’t cooperating.

The 30-year Treasury yield has barely budged since early August, even after Powell cracked the door wide open to easing.

"For all the talk that the Fed's going to cut in September, the bond market's had a month to think about it—and it's up one basis point," Bianco said.

In other words, the bond market isn't just shrugging off a rate cut—it may be quietly resisting it.

Chart: 30-Year Treasury Yields Remain Above 4.90%, Pushing Back A Fed Rate Cut

Why The Bond Market Isn’t Cheering

Bianco's reasoning is clear: the long end of the curve doesn't believe rate cuts are sustainable without fueling more inflation.

While Powell is selling the idea of “adjusting policy” due to shifting risks—i.e., softening labor data—investors see the risk of rising inflation if the Fed eases too early.

Bianco warned of “fiscal dominance,” the idea that the Fed becomes a tool for government borrowing by keeping rates artificially low. That may help in the short term—but it could break everything later.

"If the Fed cuts to make it cheaper for the government to borrow, they're essentially giving up the ability to raise rates again," Bianco explained. "And that's how you get spiraling out-of-control inflation."

What Happens If Powell Cuts Anyway?

Bianco isn't just worried about the Fed's credibility. He's concerned about effectiveness.

If the Fed cuts in September, but long-term yields continue to drift higher due to inflation fears or global bond market trends, the impact of that cut will be diluted—maybe even counterproductive.

"We've already seen this play out in Europe and the UK," he said, pointing out that long-term borrowing costs in those regions have risen despite rate cuts.

That's the paradox Powell may now face: cut rates to support jobs, but inadvertently send borrowing costs up for businesses and homeowners.

The Lisa Cook Drama: A Political Powder Keg

Overlaying the Fed's policy dilemma is a constitutional showdown brewing in Washington.

On Monday, President Donald Trump issued an unprecedented order to remove Fed Governor Lisa Cook, citing "cause" linked to alleged mortgage fraud.

"President Trump purported to fire me ‘for cause' when no cause exists under the law," Cook said in a defiant statement. "I will not resign."

Bianco says this might not affect September’s rate decision, but Cook's removal—and the power to appoint her replacement—opens the door to something bigger: Trump could shape the future of the Fed's leadership.

"If Trump has four Governors in place by early next year, he could potentially veto the reappointment of regional Fed presidents," Bianco noted. That could include Chicago Fed President Austan Goolsbee—who narrowly passed confirmation in 2023.

This means the entire makeup of the Fed's voting structure could shift—a slow-burn political time bomb for markets to worry about in 2026.

So What's The Market Missing?

But if the bond market refuses to play along, and long-term borrowing costs remain sticky, that could limit the upside for interest-sensitive sectors.

And if Powell cuts in September simply to buy political cover?

"That's a problem," Bianco said bluntly. "If it's just 25 (basis points) to get Trump off their back, that's not credible monetary policy."

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Image created using artificial intelligence via Midjourney.