Bond Yields Up Even as Fed Cuts: What Could it Mean for Your Portfolio? Deficits, DOGE and Inflation

January 9, 2025

The U.S. faces a massive $2 trillion federal budget deficit, with limited room for cuts in key areas such as Social Security, Medicare, defense spending, and interest expenses.
DOGE (Department of Government Efficiency) unlikely to make real progress.
Despite the Federal Reserve’s rate cuts, long-term Treasury rates and mortgage rates have risen significantly, almost inversely.
Long-term bonds are now riskier due to rising inflation and interest rates, leading to both declining bond prices and eroding purchasing power.
Higher interest rates increase the discount rate for future earnings, potentially lowering stock valuations.
If inflation persists and interest rates rise further, the Federal Reserve may reintroduce quantitative easing, which could accelerate inflation.
Reduced global confidence in U.S. treasuries is leading some countries to pivot toward alternatives like gold and Bitcoin.

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