- US Treasury head Scott Bessent believes the interest rate cut is long overdue, and the numbers should be 150 or 170 basis points lower.
- He urged the Fed to start slashing the numbers in September.
US President Donald Trump and his allies are definitely putting pressure on Federal Reserve Chair Jerome Powell. In an interview with Bloomberg on Wednesday, Treasury Secretary Scott Bessent claimed that the short-term interest rates in the country should be 150 or 170 basis points (bps) lower.
Bessent Insists on an Interest Rate Cut by September
The Treasury Secretary urged the Fed to make its move, starting with a 50-bp rate cut after the next Federal Open Market Committee (FOMC) meeting in September. The rates currently stand at 4.25% to 4.5%, which critics like Bessent say are “too restrictive.”
Bessent explained that interest rate cuts should have occurred as early as June and July, had the Bureau of Labor Statistics (BLS) gotten its jobs report right. The Secretary alluded to the amendments in the May and June payroll gains that slashed the numbers by 258,000.
The unfavorable outcome led to Trump firing BLS Commissioner Erika McEntarfer for allegedly rigging the July jobs report. The president, however, didn’t elaborate or provide the public with evidence for his accusation.
As a result, EJ Antoni, Trump’s nominee as McEntarfer’s replacement, told Fox News that he planned to suspend the posting of monthly job reports but would continue with the quarterly data until the BLS gets the facts straight. He emphasized that inaccuracies in the report could mislead economic decision-makers in the public and private sectors.
Additionally, Antoni highlighted that such blunders would impede the Fed’s evaluation and enforcement of the monetary policy. Today, he retracted his pronouncement.
Antoni was the Heritage Foundation’s chief economist. The organization was the mind behind the controversial Project 2025, which Trump denied any knowledge of or ties with in the 2024 campaign period. He is still subject to Senate confirmation before taking office.
Preservation of the Fed’s Independence
Despite him and Trump pressuring the Fed Chair to initiate the rate cuts in the past few FOMC meetings, Bessent defended the independence of the US central bank. For him, it is a “jewel box” that should be walled to maintain its independence when it comes to steering the monetary policy.
The president has notably bashed Powell for his presumably delayed rate cut, calling him “too late Powell” in press briefings and social media posts.
Why Does This Matter?
Lower short-term interest rates spur borrowing, making loans cheaper for consumers and businesses. This would also provide enterprises with an opportunity to bolster their operations and investments.
On the other hand, they weaken the US dollar and returns in some investments such as bonds. In this case, investors are more likely to seek risky investments with high profit potentials, including Bitcoin (BTC) and cryptocurrencies with high short- to medium-term volatility but with accretive values over time.
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