Fed Chair Probable Marc Sumerlin Says Rate Cuts Would Need To Stop If 10-Year Treasury Yields Rise

Economist Marc Sumerlin, who is reportedly on President Donald Trump’s list of possible picks as the Federal Reserve Chair, warned that the central bank would need to stop cutting interest rates if the 10-year Treasury yields rose.

In an interview with Bloomberg, Sumerlin pointed to housing as the weakest part of the economy right now. If the Fed’s interest rate cuts result in a spike in 10-year Treasury yields, Sumerlin warned that mortgage rates would go up, as was seen in 2024, he stated.

Sumerlin added that this is the constraint that the Fed has to deal with right now as it charts its course on interest rates. “The weakest part of the market, or the economy right now is housing, and so you can’t have the long end go up. That’s your constraint right now,” Sumerlin said, according to the report.

The economist recalled the Fed’s 50-basis-point interest rate cut in 2024, which was followed by two more cuts despite a rise in 10-Year yields pushing up mortgage rates.

He added that the Fed has scope to cut interest rates by 50 basis points right now due to inversion in the front end of the curve, referring to the difference between the six-month Treasury yield of 3.94% and the Fed’s current interest rates, which are in the range of 4.25% to 4.5%. “That’s something like 60 basis points last time I looked. And so you know that you can cut by that amount without really upsetting things,” Sumerlin said, according to the report.

He added that if 10-year Treasury yields go up as a result of a 50-basis-point cut in interest rates, the Fed can simply stop cutting rates. “It’s that simple,” he said, according to the report.

Meanwhile, U.S. equities were mixed in Friday’s morning session. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.06%, while the Invesco QQQ Trust (QQQ) fell 0.27%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘neutral’ territory.

Also See: PPI Report: Wholesale Inflation In July Comes In Hotter Than Expected

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