The past month and a half have been a whirlwind for the Trump administration, marked by a flurry of executive orders, Department of Government Efficiency (DOGE) spending cuts, lawsuits, tariff announcements, and geopolitical developments—leaving investors scrambling to keep pace. Cutting through the noise and focusing on the economy, it’s clear to me that the administration is pursuing three key economic goals: (1) lowering interest rates, as Treasury Secretary Scott Bessent, Elon Musk, Vice President Vance, and President Trump (here, here) have all emphasized reducing the ten-year Treasury bond yield, now a higher priority than the stock market; (2) weakening the U.S. dollar, a strategy I noted last November as a bipartisan desire to boost U.S. manufacturing, which, paired with lower rates, could also improve the trade balance; and (3) reducing oil prices, essential for keeping inflation in check and preserving consumer discretionary spending amid lower interest rates. To assess the feasibility of these objectives, I’ll outline arguments for and against each.
Goal #1: Lower yields could happen because…
DOGE Becomes Reality: The Department of Government Efficiency (DOGE) could materialize with substantial government spending cuts. Many, including myself, have been surprised by the speed and depth of these reductions. If fraud is eliminated from Social Security, defense spending is halved, and special interests in healthcare are ousted, Treasury yields might stabilize or decline. A period of government austerity may have begun.
Creative Debt Restructuring: One proposal is for the US government to revalue its gold reserves. By doing so, it could issue gold-backed Treasury bonds, potentially lowering borrowing costs.
Mar-a-Lago Accord: Treasury Secretary Scott Bessent has floated this idea, which I also discussed last year. Under such an accord, the U.S. would pressure trade partners to purchase large quantities of long-dated U.S. bonds. Bessent recently noted that the global appetite for U.S. bonds is already low, making this coercive approach a possible alternative.
Lower yields won’t happen because…
Debt Tsunami: Massive COVID-related debt accumulated in 2020 by corporations and governments alike now faces refinancing. Yields were significantly lower than compared to today, so as these bonds roll over at higher rates, expect increased financial strain on companies and governments.
Sticky Inflation: Recent inflation reports show rates stabilizing well above the Federal Reserve’s 2% target. High inflation expectations among consumers, combined with new tariffs, could keep inflation elevated, pushing yields higher.
Goal #2: A weak U.S. dollar could happen because…
Political Pressure: Scott Bessent appears determined to force currency revaluations on Japan and China, where he sees undervalued currencies, weakening the dollar relative to them. Bessent’s first call as Treasury Secretary was to Japan’s finance minister. This should illustrate the importance of such revaluation.
Growth Scare: DOGE-driven cuts and layoffs could slow US growth in the coming months (more on this below). This might hit hardest in the Virginia-Washington, D.C. area, potentially spreading nationwide, prompting the Federal Reserve to cut rates and depress the dollar.
Peace Dividend: An end to the Ukraine-Russia war could shift global dynamics. When the war began, the dollar strengthened as a “safe-haven” asset; a resolution might reverse this trend, weakening the dollar as risk appetite returns.
A weak U.S. dollar won’t happen because…
Epic U.S. Boom via DOGE: The outcome of DOGE remains uncertain, but it could spark a US growth surge. Layoffs might be absorbed by a revitalized private sector, fewer regulations could spur projects nationwide, and capital freed from waste and fraud could boost GDP, strengthening the dollar.
1930s Redux—Isolationism: Vice President Vance recently told the EU they’re largely on their own against future Russian aggression, hinting at US isolationism. The recent rift between Trump and Zelensky also showed cracks in the NATO partnership. This could initially destabilize the world, driving capital to “safe” US assets and bolstering the dollar.
Goal #3: Energy prices could fall because…
Russia Back in the Fold: The first peace summit over Ukraine’s fate was held in Saudi Arabia between the US and Russia. It is my belief that Trump’s apparent coziness with Russia suggests a push to reintegrate it into global markets, possibly adding 1 million barrels of oil daily post-sanctions once peace is achieved. Even though this is speculation, we shouldn’t overlook the fact that Saudi Arabia held the summit who also happens to be an oil rich country who could assist in increasing (or decreasing) supply.
Regulatory Cuts: DOGE’s deregulation efforts could lower costs for energy infrastructure projects, reducing production expenses.
Coal Revival: Trump might embrace coal—the cheapest, most stable electricity source—to cut energy costs domestically, freeing up oil and natural gas for export.
Energy prices will rise because…
Iran Standoff: While Trump courts Russia (and possibly Saudi Arabia as mentioned above), he’s intensifying pressure on Iran, reversing Biden’s approach of targeting Russia while tolerating Iranian oil flows. Increased sanctions on Iran’s shadow fleet are bound to squeeze Chinese refiners, tightening global supply.
China’s Recovery: China’s growth, sluggish amid a real estate collapse, is rebounding as it shifts to an industrial base. Paired with potentially lower U.S. yields and a weaker dollar, this could lift global oil demand and prices.
Conflicting Goals: Trump aims to export US energy to improve trade balances, but success in reviving US manufacturing could spike domestic demand. Without a massive ramp-up in production—requiring both deregulation and infrastructure investment—energy prices could climb.
Trump’s pursuit of these goals—lower Treasury yields, a weaker U.S. dollar, and reduced energy prices—could lead to a Goldilocks scenario, sparking an epic boom if perfectly executed, or a disastrous inflationary bust if all efforts fail. Yet, history suggests plans rarely unfold as intended, pointing to a middle ground as the most probable outcome. This uncertainty from the administrations initial moves is already reverberating through today’s markets, where the US stock landscape is grappling with the fallout of these ambitious policies.
Today, the market is navigating a turbulent landscape, pressured by a confluence of economic challenges intensified by the Trump administration’s re-emerging tariffs, including a looming 25% levy on imports from Canada and Mexico and a 10% tariff on Chinese goods effective since February 4th, which are driving up costs, threatening inflation, and weighing on trade-sensitive sectors like manufacturing and retail. Simultaneously, the Department of Government Efficiency (DOGE) is signaling aggressive federal spending cuts that could unravel recent government-fueled growth, while the Atlanta Federal Reserve’s GDPNow model projects a stark -1.5% Q1 2025 GDP contraction—down from +2.3% days earlier—reflecting weaker consumer spending and amplifying concerns about cooling demand and policy uncertainty. Investors are jittery, with the Dow Jones up just 2% year-to-date amid wild swings, far from late 2024’s exuberance, as the Federal Reserve holds rates at 4.25%-4.50%, adopting a “wait and see” stance that leaves markets guessing about relief via rate cuts. Looking ahead, escalating tariffs or retaliation from trading partners could hit corporate earnings, particularly for multinationals, while sticky 3% inflation and a paused Fed rate-cutting cycle may pressure financials, tech, and growth stocks; yet, if the economy worsens, a Fed pivot to rate cuts could reignite market optimism. The next few weeks might be volatile, but this isn’t the first time, nor will it be the last time, the market experiences a potential growth scare. As policy becomes clearer, it wouldn’t surprise me to see yields increase, US dollar go down and energy to remain stable in terms of price which could lead to a reversal in the underperformance of US cyclicals. As a reminder, nothing goes up in a straight line and if investing was easy, everyone would be super rich.
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