JAKARTA – The US Treasury yield curve steepened on Tuesday, with short-term yields falling and long-term yields rising, following President Donald Trump’s move to dismiss Federal Reserve Governor Lisa Cook from the central bank’s board.

As reported by CNBC on Tuesday (26 August), the yield on two-year bonds fell by more than 4 basis points to 3.685%, while the 30-year yield rose by over 2 basis points to 4.911%. The 10-year Treasury yield dipped by less than 2 basis points to 4.26%. One basis point equals 0.01%, and yields move inversely to bond prices.

Investors are betting on interest rate cuts in the near term, but expect higher rates over the longer term after Trump undermined the Fed’s independence by announcing Cook’s dismissal via a post on his platform, Truth Social.

The President cited allegations from Federal Housing Finance Agency Director Bill Pulte, claiming that Cook had made false statements regarding one or more of her mortgage agreements.

Cook intends to challenge her dismissal. Her lawyer stated on Tuesday that the President does not have the authority to remove her.

On Monday evening, Cook herself said: “Trump claims to have dismissed me for certain reasons, but there is no legal basis for such action, and he lacks the authority to do so.”

Cook, the first Black woman to serve as a Fed Governor, also affirmed: “I will not resign and will continue to fulfil my role.”

Jamie Cox, Managing Partner at Harris Financial Group, explained that Trump is set to overhaul the Federal Reserve Board within the coming year.

“He’s doing it in a highly unconventional manner. We’ve already seen one resignation and now a dismissal, paving the way for accelerated change,” said Cox.

“Trump has effectively seized the Fed’s forward guidance function temporarily, signalling to markets that lower interest rates are imminent. This is reflected in the steepening yield curve, with short-term bonds plunging,” Cox added.

As a result, investors are wagering that the Fed may pay less attention to inflation going forward, making long-term bonds less attractive and pushing long-term yields higher. The US dollar also weakened against several currencies for similar reasons.

Investors were also monitoring a series of economic reports on Tuesday. US durable goods orders for July came in stronger than economists surveyed by Dow Jones had expected. Consumer confidence data for August also exceeded forecasts.

Next, attention will turn to the Personal Consumption Expenditures (PCE) price index—an inflation gauge closely watched by the Fed—due later this week, as markets look for signs that inflation is at a level that could justify rate cuts, regardless of Trump’s political intervention. (SA/LM)