US Treasury Secretary Scott Bessent spoke on Tuesday, saying he was “fairly confident” that core prices in the US would continue to fall despite the Iran war and that he was urging the Federal Reserve (Fed) to cut interest rates.
Bessent added that he understood that Fed policymakers wanted to assess economic developments related to the Middle East conflict before deciding on interest rates. He added that Donald Trump’s nominee, Kevin Warsh, should lead the next easing cycle. Asked whether Jerome Powell would run for Fed chair if the Senate doesn’t approve Warsh’s nomination, he said: “We want Kevin Warsh as soon as possible.”
Key highlights:
FED COULD WATCH BEFORE LOWERING RATES; The emphasis is that they need to lower prices
The Fed should wait until the war has started
We implemented Section 122 tariffs of 10%; The President has not decided to increase this rate to 15% at this time
I’m pretty confident that core inflation will continue to fall
We want a housing bill passed and Kevin Warsh as Federal Reserve Chairman as soon as possible
Fed FAQs
Monetary policy in the USA is shaped by the Federal Reserve (Fed). The Fed has two missions: to achieve price stability and to promote full employment. Their main tool for achieving these goals is to adjust interest rates. If prices rise too quickly and inflation is above the Fed’s 2 percent target, interest rates are raised, raising borrowing costs throughout the economy. This leads to a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money. If inflation falls below 2% or the unemployment rate is too high, the Fed can cut interest rates to encourage borrowing, weighing on the greenback.
The Federal Reserve (Fed) holds eight monetary policy meetings per year, at which the Federal Open Market Committee (FOMC) assesses the economic situation and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the President of the Federal Reserve Bank of New York and four of the remaining eleven Presidents of the Regional Reserve Bank, whose terms of office are one-year.
In extreme situations, the Federal Reserve may resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed significantly increases the flow of credit in a stalled financial system. This is a non-standard policy measure used in times of crisis or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. The Fed prints more dollars and uses it to buy high-quality bonds from financial institutions. QE usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing in which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the capital of the bonds it holds at maturity into purchasing new bonds. Usually it is positive for the value of the US dollar.
