U.S. Treasury Secretary Bessant says Fed Chair Kevin Walsh is under no pressure to cut rates
Source: Global Market Report
U.S. Treasury Secretary Scott Besant said on Friday that the newly appointed Federal Reserve Chairman Kevin Walsh is not under pressure to cut rates.
At the Reagan National Economic Forum in California, when asked if he agreed with U.S. President Trump’s remarks that he hopes Walsh will maintain his independence, Besant replied, "One hundred percent."
Besant said he had breakfast with Walsh this week and described it as "a new day for the Fed."
"This is a renewal. Change is a good thing, and I think we’re going to have a new sheriff in town," Besant said.
The Treasury Secretary stated that he did not want to speak ahead of Walsh but expects Walsh to remove forward guidance, that is, the practice of Fed officials sending strong signals about future rate decisions.
"I also think we will return to fundamentals regarding accountability and credibility," Besant said.
Besant said that although both inflation and interest rates are at high levels, he believes it’s a great time for Walsh to take over as Fed chairman. He pointed out, "A lot of media like to exaggerate, and if there's been any success in my 35-year career on Wall Street, it usually came from going against the front-page headlines."
The bond market is currently pricing in a 25 basis point rate hike this year. Fed officials are inclined to keep rates unchanged for now, but they are closely monitoring whether inflationary pressures will intensify, which could force them to raise rates.
Besant mentioned that bond yields peaked the day before Walsh was sworn in as Federal Reserve Chairman last Friday.
"I'm not saying whether this is causality or correlation, but rates peaked the day before Chairman Walsh was inaugurated," he said.
At Walsh's inauguration, Trump said, "I want Kevin to be totally independent. Don't look at me, don't look at anyone, just do your own thing and do a good job."
This statement came after Trump had repeatedly and fiercely criticized former Chairman Jerome Powell for being "too late" in cutting interest rates.
Inflation data provided new evidence for the challenge facing Walsh: in April, the Consumer Price Index rose nearly 4%, and with higher input costs caused by oil prices being passed on to consumers, inflation appears to be broadening. Meanwhile, propelled by a surge in energy prices, the Producer Price Index soared by 6% in April.
The bond market has priced in rate hike expectations; the two-year U.S. Treasury yield is 25 basis points higher than the Fed's current benchmark range of 3.5%-3.75%. However, traders see the probability of a rate hike in December at 36%.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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