Bessent stated that current interest rates are 'too restrictive' and called for the Fed to initiate 'compensatory' rate cuts totaling more than 150 basis points. Analysts warn that the contradiction between inflation and employment data, along with pressure from the White House and internal hawk-dove tensions, complicates the decision-making process.
U.S. Treasury Secretary Bessent publicly stated that the current interest rate level is 'too restrictive' and believes the benchmark rate should be lowered by 150-175 basis points. In an interview with Bloomberg Television, he predicted that the Fed may initiate a series of rate cuts in the coming months, with September likely to see the first implementation of a 50 basis point 'compensatory' cut.
'The likelihood of a 50 basis point rate cut in September is very high,' Bessent emphasized on Wednesday, 'This may be the start of consecutive rate cuts to compensate for the missed policy adjustment window earlier this summer.' He added that any model shows that rates should be lowered by at least 150 to 175 basis points. Currently, the Fed maintains the benchmark interest rate in the range of 4.25%-4.5%.
When mentioning candidates for the Fed chair, Bessent noted that they would cast a 'large net' encompassing 10-11 individuals. He also stated that he previously proposed establishing a 'shadow Fed chair', but now sees no need for it. Furthermore, Bessent believes that the Fed does not need to re-implement large-scale asset purchases.
(QE)
According to CNBC, two government officials revealed that the Trump administration is considering 11 candidates to succeed Fed Chair Jerome Powell when his term ends in May, including three individuals who have never been publicly nominated before. New candidates include Jefferies Chief Market Strategist David Zervos, former Fed Governor Larry Lindsey, and BlackRock's Global Fixed Income Chief.
Chief Investment Officer of Fixed Income Rick Rieder.
The market has already celebrated in advance, with investors betting that the probability of a rate cut in September soared to 96% after the July inflation data came in below expectations.
The focus of the controversy lies in the magnitude of the rate cut. Bessent advocates for an aggressive 50 basis point move, while analysts warn that core inflation rising to 3.1% and the upcoming employment data may delay the decision. The latest data from the U.S. Department of Labor indicates clear signs of cooling in the labor market, with an average non-farm employment increase of only 35,000 over the past three months, and the May data has been significantly revised down from 144,000 to 19,000.
Bessent's aggressive stance resonates with the pressure from the White House. Trump recently reiterated on social media that 'tariffs did not cause inflation', continuing to criticize the Fed's slow normalization process. Although the Fed emphasizes that decisions are solely based on economic data, political pressure cannot be ignored—Trump's nominated dovish governor Stephen Miran is set to attend the next meeting, which may further strengthen the rate cut camp.
In July, two committee members opposed keeping interest rates unchanged, and the gap before the August Jackson Hole meeting gives the committee more time to assess key data.
Deutsche Bank analyst Jim Reid reminds clients that 'it's too early to take the market's view of a September rate cut as a given; future employment data will be more indicative for short-term decisions.'
Similar to Bessent's view, UBS Global Wealth Management CIO Mark Haefele maintains the baseline forecast of a 100 basis point rate cut cycle starting in September.
However, JPMorgan's Chief Investment Strategist Elyse Ausenbaugh pointed out: 'The Fed is more likely to act in the fourth quarter unless future data shows a cliff-like deterioration.' Her concerns are not unfounded, as BlueChip Daily Trend Report Chief Strategist Larry Tentarelli found through data comparison that 'two consecutive months of rising inflation make a September rate cut difficult to justify.'
Amid various conflicting opinions, the ultimate decision may rest with the labor market. Comerica Bank Chief Economist Bill Adams emphasized that inflationary pressures mainly stem from 'sticky service prices rather than tariffed goods', and the employment data released in September will become the decisive weight on the policy balance.
Additionally, when discussing the employment report, Bessent stated that he does not support stopping the release of employment reports but emphasized the need for reliable data. He stressed that Anthony is highly qualified to serve as the head of the U.S. Bureau of Labor Statistics.
