Bessent Idea to Lower Rates by 150 Basis Points is 'Ridiculous,' John Authers

John Authers, Senior Editor with Bloomberg Opinion, discusses his recent column on Scott Bessent and rate cut expectations.

Scott Bessent, the US Treasury secretary, made big news on Blooomberg Surveillance. He told the televised audience that “if you look at any model” for the fed funds rate, it suggests that “we should probably be 150, 175 basis points lower.”

This is breathtaking. With the current effective fed funds rate at 4.33%, he is suggesting that it should be about 2.6%. Over the last 70 years, the rate has never been that low with inflation as high as it currently (with the core reading above 3%). So apparently “any” model now shows that US monetary policy has been misguided throughout that entire period and needs to be changed.

In fact, it's easy to find a model that says fed funds should be far higher than 4.33%. Arguably the most famous is the Taylor Rule, named for John Taylor, a Stanford economist and former senior Treasury official who was a candidate for the Federal Reserve chairmanship eight years ago. His formula suggests the next move should be up.

This is available on the Bloomberg terminal; it’s not exactly obscure. We also handily provide various different versions of the Taylor framework. This is the fed funds rate under the adaptation made by Gregory Mankiw, the Harvard economist who served as George W. Bush’s chairman of the Council of Economic Advisers.

The point is not that these models are necessarily right. They may well not be. And Bessent has a right to express his opinion. But it’s absurd to suggest that “any” model would call for fed funds to be so much lower, and alarming to hear it from the US Treasury secretary.

The bottom line we already knew from presidential social media accounts: Donald Trump wants lower interest rates, and more control over them. Fed independence has long been contested, and other presidents have kicked against it — but since the end of the gold standard in 1971, an independent Fed has been central to maintaining the dollar as the linchpin of the global economy. This is a dangerous game.

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