Fed Faces High Bar for Big Cuts Despite White House Pressure
On Wednesday, he urged Fed officials to forgo gradualism and cut interest rates by half a percentage point next month, followed by a series of reductions that would slash borrowing costs from their current level of 4.25 percent to 4.5 percent.
That is unlikely to happen without a substantial deterioration of the labor market, keeping Jerome H. Powell, the Fed chair, at odds with the administration's demands. Mr. Bessent said on Wednesday that interest rates should be at least one and a half percentage points lower than they are now. President Trump has insisted on an even more aggressive reduction, saying rates should be lowered to nearly 1 percent — a level typically reserved for periods of economic distress.
Mr. Bessent's call for significantly lower interest rates came on the heels of a somewhat mixed inflation report.
Overall price gains in July's Consumer Price Index were subdued enough to bolster the case for the Fed to lower interest rates in mid-September. But a pop in prices across the services sector accelerated last month, leaving policymakers and economists grappling with whether they were seeing just a blip or the start of a more unnerving trend — one that could make it hard for the Fed to go big.
The Fed typically adjusts interest rates by a quarter-point, although moving in larger increments has happened recently. Last September, the central bank kicked off a series of interest rate cuts with a half-point reduction, which Mr. Powell said at the time was appropriate because inflation had receded from its recent peak and the labor market needed shoring up. In May, he conceded that the Fed had been 'a little late,' suggesting that the September move amounted to playing catch-up after interest rates were kept steady at the previous meeting.
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