US Treasury Secretary Says He’s Not Pushing Fed Cuts, Just Touting Models

US Treasury Secretary Scott Bessent said he isn’t calling for a series of interest-rate cuts from the Federal Reserve, just pointing out that models suggest a “neutral” rate would be about 1.5 percentage points lower.

“I didn’t tell the Fed what to do,” Bessent said Thursday in an interview on Fox Business, referring to his comments a day before about how the central bank “could go into a series of rate cuts here.”

Bessent said Thursday that “what I said was that to get to a neutral rate on interest, that that would be approximately a 150-basis-point cut.”

The so-called neutral rate is the level at which policy neither stimulates nor restricts the economy. Fed Chair Jerome Powell said July 30 that there are “a range of views of what the neutral rate is at this moment for our economy” and that his own estimate was that the current setting was “modestly restrictive.”

“I believe that there is room, if one believes in the neutral rate,” for a series of rate cuts, Bessent said. “I’m not calling for one. I didn’t call for one. I just said that a model of a neutral rate is approximately 150 basis points lower.”

The Fed last month kept its target range for the benchmark rate at 4.25% to 4.5%. The median estimate of the neutral rate among Fed officials over the long run is 3%. Powell and many of his colleagues have for months argued that more time was needed to assess any impact on inflation and inflation expectations from President Donald Trump’s tariff hikes.

Trump has regularly criticized Powell for holding rates. Bessent, after taking the Treasury’s helm, said he would only address past Fed actions, not future ones, but later weighed in on what he thought markets were expecting monetary policymakers to do. This week, he has taken to referring to economic models, and has repeatedly suggested a 50-basis-point rate cut is possible at the Fed’s September meeting.

“It’s not really the role of the Treasury secretary to opine” on the neutral rate, said Julia Coronado, founder of the research firm MacroPolicy Perspectives and a former Fed economist. “The fact that the most senior economic official in the administration is saying these things publicly is direct, public pressure on what he wants the Fed to do.”

Former Treasury Secretary Lawrence Summers, who served under Democratic President Bill Clinton, said he was “surprised” to see Bessent’s remarks on Wednesday.

“Usually that kind of judgment is not made by administration officials, and I’m not sure it’s helpful for the administration to be publicly prescribing on monetary policy,” Summers said on Bloomberg Television’s Wall Street Week with David Westin.

Summers, a paid contributor to Bloomberg TV, also suggested that a measure of the neutral rate should incorporate the effects of large budget deficits and elevated demand for funds to pay for data centers — along with higher asset prices that reduce the flow of funds into savings. Against that backdrop, “you wouldn’t be prescribing a 175 basis point cut in rates unless we see a recession.”

Interest-rate futures as of Thursday morning reflect bets that the Fed will cut rates by less than a cumulative 150 basis points by the end of next year. They also show slightly less confidence in a 25-basis-point reduction at the September meeting. The retreat came after a release on US wholesale inflation showed those prices climbed by the most in three years.

Speaking to Bloomberg Television on Wednesday, Bessent said “if you look at any model” it suggests that “we should probably be 150, 175 basis points lower” on the Fed’s benchmark. He also said that 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. “I suspect we could have had rate cuts in June and July,” Bessent said. 

“I don’t know what model he’s talking about,” said Jim Bianco, president of Bianco Research and a longtime Fed and Treasury watcher. “There is no model I’m aware of that says it should be that low,” he said of the Fed’s benchmark.

Other gauges of where the Fed should be, such as the Taylor rule, also aren’t arguing that the main rate should be 150 to 175 basis points lower than it is, Bianco said. He added that there have been many instances over the decades of “cajoling Fed chairs,” and they’re “welcome to offer their opinion,” but it shouldn’t change the central bank leader’s opinion.

Bessent repeated on Thursday that, given the context of the weaker jobs figures and not having cut rates the past couple of months, “perhaps a 50-basis-point cut in September was warranted.”

Two Fed district bank presidents said they’re not backing such a move at this point. San Francisco Fed President Mary Daly said in a Wall Street Journal interview Wednesday, “I just don’t see that. I don’t see the need to catch up.” St. Louis President Alberto Musalem said on CNBC Thursday, that a 50 basis-point cut would be “unsupported by the current state of the economy and the outlook for the economy.”