Bessent Says Fed ‘A Little Off,’ Flags Signal From Two-Year Rate

ArmandBusiness2025-07-045450

(Bloomberg) -- Treasury Secretary Scott Bessent questioned Federal Reserve policymakers’ judgment on interest rates, reiterating his view that two-year Treasury yields are a signal that their benchmark rate is too high.

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“The committee seems to be a little off here in their judgment,” Bessent said in an interview on Fox Business Thursday, referring to the Fed’s rate-setting Federal Open Market Committee.

The Treasury chief has repeatedly said he would only comment on past Fed policy, not prospective decisions. Even so, he repeated his argument that “two-year rates are telling us that the overnight rate is too high.” The Fed’s benchmark federal funds rate target is an overnight rate. It’s currently set at a range of 4.25% to 4.5%. Two-year Treasury yields are currently around 3.76%.

“We are at very high real rates here,” Bessent also said later Thursday, speaking on CNBC — referring to rates adjusted for inflation. “But again, it’s their decision, and I just think if they don’t cut, then perhaps the cut in September will be bigger.”

Interest-rate futures show traders are betting on at least a quarter percentage point reduction at the Fed’s September meeting, with no change anticipated for the July gathering.

Asked in an interview on Bloomberg Television whether he agrees with President Donald Trump that the Fed should cut rates by three full percentage points, Bessent declined to answer directly. He reiterated that the market is signaling cuts, while adding that Trump in his first term was “more right than the Fed was on when it was time to cut rates.”

Powell Question

Bessent also declined a specific response on CNBC when asked about the call by Bill Pulte, the administration’s housing-finance chief, for Fed Chair Jerome Powell to resign over what Pulte claimed was deception in testimony to Congress about renovations at the central bank’s building. Bessent limited his comments on Fox Business to saying the Fed should “get their spending under control, just like everybody else.”

“There are a lot of good, strong candidates” to replace Powell when his term as Fed chair is up in May 2026, Bessent also said. Asked about his own potential candidacy, he said, “I’m not going to reveal private conversations.”

Speaking later on CNBC, he pointed out that nobody has held both the Treasury secretary and the Fed chair jobs at the same time since the 1930s.

Story Continues

Bessent also signaled he hopes that Powell leaves the Fed altogether next May. Technically, Powell would be able to stay on the Fed board until 2028, thanks to his separate term as a governor. If he did that, then only Adriana Kugler’s position would be open in 2026, with her term coming due in January.

“We get to hopefully fill two seats next year,” Bessent said.

Fed Politics

Bessent on CNBC suggested that Fed policymakers differ in terms of their expectations based on who appointed them to the board. “There seems to be a big dispersion in the so-called dot plot,” he said, referring to the projections of Fed policymakers for their benchmark rate. He said there was a dispersion “between the Trump appointees and the non-Trump appointees. I’ll let you read into that. What you want.”

The dot-plot projections are anonymously presented by the Fed, so it’s not possible to publicly determine how the forecasts break down according to different appointees. But Governors Christopher Waller and Michelle Bowman, whom Trump nominated to the board, have said the Fed could cut rates as soon as July.

Speaking ahead of congressional passage of Trump’s signature tax and spending bill, Bessent noted that the legislation contains an increase in the federal debt ceiling. The $5 trillion boost “should get us well into 2027,” he said.

The Treasury since January has been using special accounting measures to make good on federal payments while staying within the statutory ceiling. Once the legislation is signed into law, the department is expected to ramp up sales of Treasury bills to restock its cash pile.

Debt Strategy

Asked about debt-issuance strategy more broadly, Bessent said that, with two-year yields indicating the overnight rate is too high, “we’re going to take that into account,” without being more specific. He also said that “our debt management process is very regular, very methodical — but we are going to take these contingencies into account.”

“We will make make our decision on how to term the debt out over the next couple months,” he said. The Treasury’s next so-called quarterly refunding, where it typically announces any changes in issuance strategy, is scheduled for July 30.

Speaking on Bloomberg, Bessent declined to say whether he agrees with Stephen Miran, chair of the White House Council of Economic Advisers, that Trump’s policies will reduce US fiscal deficits by up to $11 trillion over the coming decade. The Treasury secretary said that “it’s very difficult to predict 10 years out” for federal borrowing.

“A lot of moving pieces here, but I’m confident that we’re going in the right direction,” on debt, he also said.

--With assistance from Romaine Bostick and Matthew Miller.

(Updates with Bessent comments on Trump call in sixth paragraph, and on debt savings in final two paragraphs.)

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