Bessent Urges Fed To Lower Rates By 150 Basis Points Or More

US Treasury Secretary Scott Bessent made his most explicit call yet for the Federal Reserve to execute a cycle of interest-rate cuts, suggesting the central bank’s benchmark ought to be at least 1.5 percentage points lower than it is now.

“I think we could go into a series of rate cuts here, starting with a 50 basis-point rate cut in September,” Bessent said in a television interview on Bloomberg Surveillance Wednesday. “If you look at any model” it suggests that “we should probably be 150, 175 basis points lower.”

Fed policymakers last month kept their benchmark at a target range of 4.25% to 4.5%, where it’s been all year. Bessent said officials might have cut rates if they’d been aware of the revised data on the labor market that came out a couple of days after the latest meeting. The Bureau of Labor Statistics on Aug. 1 slashed the numbers for payroll gains in May and June by 258,000. 

“I suspect we could have had rate cuts in June and July,” Bessent said. 

Bessent’s suggestion for rate cuts exceeds what’s indicated in the bond market. One and a half percentage point of cuts would take the midpoint of the Fed’s target range to 2.88%. Interest-rate futures reflect bets on the Fed lowering its benchmark to 3% in September or October next year. Two-year Treasury yields remain well above, at 3.68%.

Treasury secretaries have typically shied away from making specific calls on Fed rates, and Bessent has said for months he would only discuss the central bank’s past policy decisions — not their upcoming ones. President Donald Trump has repeatedly criticized Chair Jerome Powell for refraining from rate cuts this year. Powell and many colleagues have said they want to see more evidence about the inflationary impact of Trump’s tariff hikes.

Bessent said there are 10 or 11 candidates under consideration to succeed Powell when his term as chair ends in May — including current Fed officials — without running through the names. 

“We’re working on the big list right now,” he said, adding that two more names might be “revealed” Wednesday. 

CNBC reported that Trump is considering candidates including David Zervos, chief market strategist at Jefferies; Rick Rieder, chief investment officer for global fixed income at BlackRock; and former Fed Governor Larry Lindsey.

Bessent also said he didn’t expect Stephen Miran, whom Trump has nominated to fill the existing opening on the Fed board, to stay on after January when that term is up. A new 14-year term opens at that point, and Bessent’s comments indicate Trump would pick a new candidate.

Unless there’s an unscheduled opening on the Fed board, Powell’s replacement would need to come from either the slot that will be open in January, or from the Fed chair’s own seat on the board. That option is more complicated because Powell’s governorship extends into 2028, and he hasn’t clarified if he’ll leave the board when his term as chair ends.

Bessent reiterated he was hopeful that the Senate can confirm Miran, who heads the White House Council of Economic Advisers, by the time of the Fed’s Sept. 16-17 meeting.

He also said that US Treasury yields are feeling the impact of overseas developments, including from Japan and Germany.

“There’s definitely leakage from — the Japanese have an inflation problem,” he said. Bessent said that he had spoken with Bank of Japan Governor Kazuo Ueda. “My opinion, not his — they’re behind the curve. So they’re going to be hiking.”

Japan’s super-long dated government bond yields have surged in recent months, and some auctions have seen the weakest demand in many years. Germany’s yields have also been climbing, with 30-year rates on Tuesday reaching the highest level in 14 years. “Our 30-year is getting dragged along with that,” Bessent said.

Asked if those moves argued for the US to pare back its own issuance of 30-year debt, Bessent said that the department’s thoughts “are evolving, and we’ll see where things go.”

The Treasury last month left its debt-issuance plans for longer-dated maturities unchanged and indicated it didn’t see a need to boost those sales for at least the next several quarters. Bessent said that asset managers are “most interested” in the so-called belly of the yield curve. Dealers often use the term “belly” for maturities in the 5- to 10-year range.

Bessent highlighted that 10-year Treasury yields are lower now than at the start of the year, in contrast with some markets overseas. “That tells me there’s credibility” from investors in the Treasury and the Fed, he said. “Inflation expectations are well-anchored.”