The Chicago Tribune on whether a bond market crash would change Trump’s course:

Americans unhappy with President Donald Trump’s second term have taken to wishing for something they shouldn’t.

If only the U.S. Treasury bond market were to crash, the thinking goes, then Trump would be forced to change his policies. Bond traders could simply knock down the whole economic house of cards and then, presto! Goodbye to tariffs and hello to fiscal responsibility.

Time for a reality check: First, a bond market crash would be a disaster that would cost Americans dearly for years to come. Second, the bond market sure doesn’t look like it’s going to crash.

How do we know? No one can predict the future, but for decades Chicago has played a leading role in the Treasury markets via CME Group futures contracts. And one great thing about futures is that anyone can see what real traders putting real money on the line believe is going to happen in, yes, the future.

The most active 30-year Treasury bond and 10-year Treasury note contracts show expected prices through the end of the year, and there’s been volatility, for sure. They also reflect an unusual pattern of interest rates staying relatively high even as the dollar weakens, probably because Trump’s trade wars do indeed stand to hurt the economy, as does the lamentable lack of fiscal discipline in Congress.

So far, however, the markets are not pricing in anything like a crash. In fact, long-term interest rates are less than 5% and inching lower in recent days, which is hardly a sign of an imminent crisis.

... With unemployment at just 4.2% and inflation at 2.3% (and closing in on the Fed’s 2% target) the “hard data” are still amazingly healthy.

Not only did the U.S. avoid an oft-predicted recession over the past several years, but growth picked up momentum throughout 2024.

In his recent talk, Austan Goolsbee, who heads the Federal Reserve Bank of Chicago, acknowledged that U.S. interest rates are higher than they should be because of policy uncertainty. Getting that “dust out of the air,” as he put it, would tee up lower rates. “If you have stable, full employment and inflation going to target, rates can come down.”

Lower rates make it cheaper to obtain loans and manage debt, which would encourage consumer spending and business investment. Washington needs to cut the chaotic policymaking and embrace responsible political solutions without bond vigilantes forcing the issue — as much as Trump’s critics wish they would.