Bessent says Fed should "wait and see" before cutting rates
US Treasury Secretary Scott Bessent crossed the wires on Tuesday, stating that he’s “quite confident” that core prices would continue to edge lower in the US despite the Iran war, and that he’s pressing the Federal Reserve (Fed) to cut rates.
Bessent added that he understood Fed policymakers wanted to assess economic developments linked to the Middle East conflict before deciding what to do with rates. He added that Donald Trump’s nominee, Kevin Warsh, should lead the next easing cycle. When asked about Jerome Powell standing as Fed Chair if the Senate does not approve Warsh’s nomination, he said that “We want Kevin Warsh in as soon as possible.”
Key highlights:
FED COULD OBSERVE BEFORE THEY CUT RATES; EMPHASIS IS THAT THEY WILL NEED TO CUT RATES
FED SHOULD WAIT UNTIL WARSH IS IN PLACE
WE HAVE PUT IN 10% SECTION 122 TARIFFS; PRESIDENT HASN’T OPTED TO LIFT THAT RATE TO 15% AT THIS POINT IN TIME
I’M QUITE CONFIDENT THAT CORE INFLATION WILL CONTINUE TO GO DOWN
WE WANT TO GET A HOUSING BILL PASSED, WANT KEVIN WARSH IN AS FED CHAIR AS SOON AS POSSIBLE
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
