Source: Golden Ten Data

Investors are debating what factors are driving the rise in U.S. Treasury yields, which in turn has sent shockwaves through the stock market.

Paul Krugman, the recently retired New York Times columnist and Nobel laureate in economics, proposed what he thinks is a possible explanation.

“Rising long-term interest rates, such as the 10-year U.S. Treasury note rate, may reflect a scary, creeping suspicion that Trump actually believes the crazy things he says about the economy. and will act on these views," he wrote in an article titled "Are Interest Rates at a Crazy Premium? "(Is an Insanity Premium on Interest)" wrote in the article.

Of course, Krugman is not a fan of Trump, and vice versa. But as Trump's January 20 inauguration approaches, questions surrounding what exactly Trump's agenda will bring are undoubtedly at the forefront of investors' minds.

Klugman suspects markets are reacting to the president-elect's comments on tariffs, while also noting his refusal to rule out the possibility of taking control of Greenland and the Panama Canal through economic or military coercion, and Canada is called the "51st state" of the United States.

Krugman cited "near consensus" among economists that Trump's agenda of high tariffs, tax cuts and mass deportations of illegal immigrants will lead to a significant increase in inflation, even though "It might not happen right away."

“However, if he (Trump) were to implement any substantive part of these agendas, the Fed would certainly have to put further rate cuts on hold. In fact, the Fed may well feel the need to raise rates again ," Krugman wrote.

The minutes of the Fed’s December meeting echoed Fed Chairman Powell’s speech at the time. The latest minutes of the meeting stated that "almost all Fed officials believe that the risks of upward inflation are increasing, in part because incoming Trump is considering potential adjustments to trade and immigration." However, these concerns have not stopped the Fed from Rates were cut by 25 basis points last month.

Earlier on Wednesday, Adam Posen, a currency expert and economist who has served on the Bank of England's rate-setting committee, said he believed the Federal Reserve will have to start raising interest rates this summer in order to Dealing with Trump's budget plan.

However, investors also heard a speech from Fed Governor Waller on Wednesday, who expressed support for more interest rate cuts this year and did not believe that the import tariffs proposed by incoming Trump would cause inflation to continue to rise. pressure.

Investors are not yet ready to attribute the rise in U.S. bond yields entirely to tariffs and other jitters.

Krugman’s article is also a reflection on Apollo Global Management) Chief Economist Torsten Slok responded to an article published on Tuesday. Slok believed that after the Federal Reserve cut interest rates, the 10-year U.S. Treasury yield jumped to 4.7% from around 3.6% in September. % is very unusual.

"Is it fiscal concerns? Is foreign demand reduced? Or is the Fed's interest rate cuts unreasonable? The market is telling us something. For investors, it is important to understand why long-term interest rates rise during the Fed's interest rate cuts. is very important," Slock wrote.

Investors and analysts are still debating the potential impact of Trump's tariff plans, whether they are simply a negotiating tactic and how much impact they will ultimately have on prices.

At the same time, whatever the reason for the rise, the surge in yields is to blame for the post-election stock market rally, especially given that technology stocks are overvalued.

Mark Hackett, Nationwide's director of investment research, said in a phone interview: "I think the Greenland incident may be more entertaining than fundamental."

In contrast, tariff concerns are having an impact, he said, but he believes the stock market is "right now in a mode of looking for reasons to sell off."

In other words, after the S&P 500 posted a second consecutive year of annual gains of more than 20%, the market was "expensive and exhausted," and tariff-induced panic became a good excuse for selling. .

When it comes to rising yields, Krugman acknowledged that his preferred explanation "may be wishful thinking." The economist predicted an imminent global recession in November 2016 when Trump was first elected president, but walked back that prediction days later, warning that a Trump victory could ultimately have dire ramifications. But it may help accelerate short-term economic growth.

Klugman said in Wednesday's article that he didn't want to push his argument "too far" in part because "I don't want to succumb to motivated reasoning." He said: "Those of us who were shocked by Trump's rise to power would like to see him punished by the market, but we should not expect instant gratification. The consequences of his economic delusions will likely not be realized for years." Show up."