Treasury Secretary Scott Bessent said that the US Treasury market is telegraphing that the Federal Reserve ought to lower interest rates.
“We are seeing that two-year rates are now below fed funds rates. So that’s a market signal that they think the Fed should be cutting,” Bessent said in an interview with Fox Business.
Two-year Treasury yields were at 3.66% as of 12:56 p.m. in New York, compared with a benchmark federal funds rate of 4.33%. The Fed currently targets the key rate at a range of 4.25% to 4.5%.
Fed policymakers have suggested that they’re not yet ready to resume lowering rates, with inflation still running above their 2% target and given the likely pressure on prices to come from President Donald Trump’s tariff hikes. The Fed next decides on rates May 7 when almost all economists predict them to stand pat.
Trump has repeatedly criticized Fed Chair Jerome Powell for not cutting rates this year, saying Tuesday that “I have a Fed person who’s not really doing a good job.”
One of Bessent’s predecessors, Lawrence Summers, said that while he hadn’t closely looked at the Treasury chief’s comments, “It’s pretty analytically unsound to reason from the two-year to what the Fed should do.”
“If he was making comments that could reasonably be interpreted as being prescriptive with respect to the Fed, that seems like a quite unusual choice for a Treasury secretary — and a problematic choice as well,” Summers, a paid contributor to Bloomberg TV, said on Wall Street Week with David Westin.
Read more: Summers Says It’s Wrong to Say Markets Tell Fed It Should Cut
Despite Trump’s continued attention to the Fed’s benchmark, which is an overnight rate, Bessent argued that he and the president are focused on 10-year Treasury yields — “targeting that point on the curve.”
Bessent highlighted that 10-year yields have retreated since Trump took office. They were around 4.21% Thursday, compared with around 4.63% on Jan. 20. National Economic Council Director Kevin Hassett, speaking on CNBC, said the drop in 10-year rates is “saving the federal government lots of money” in terms of interest costs.
“Why does the Treasury rate go down? It’s because people understand that we’re going to not have another inflationary spending blowout like we did in the previous administration,” Hassett said.
Bessent reiterated his prediction that the “aperture” of uncertainty about tariffs will narrow as time goes on and trade deals are done. He highlighted that while alarming headlines emerged during the month of April about deep selloffs in equities, they ended largely flat on the month.
“The market did this incredible round trip in April,” he said. “The path is going to be worth it when we get there, and for the short term I think everyone should take a deep breath.”
As for the sequencing of deals, Bessent suggested it was possible that an initial step could be taken with China ahead of agreements with American allies and partners in Asia. As there is currently the “equivalent of an embargo” with China, given high tariff rates, there’ll be a multi-step process with Beijing, he said.
It could “perhaps” be the case that “the Chinese need to de-escalate sooner” than agreements are reached with other nations, Bessent said. “As we speak, we’re going into the holiday season — orders are placed for that now. So if those orders aren’t placed, it could be devastating for the Chinese.”
Written by: Hadriana Lowenkron @Bloomberg
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