BlockBeats news, on August 5, "Fed Whisperer" Nick Timiraos published an article stating that U.S. Treasury Secretary Bessent’s policy reaction function has shifted to become less dovish. His remarks this year suggest that the Fed should maintain interest rates at their current level. Earlier this year, Bessent cited models indicating that the Fed’s interest rate could be above the neutral rate by anywhere from more than 25 basis points to over 100 basis points.
Bessen presented two viewpoints on August 4. First, he defended Wash’s decision last week not to articulate any policy reaction function: “I believe each meeting should remain open, and market participants should make their own judgments. I think Wash wants to preserve flexibility to achieve the best outcome.” Second, he did propose a set of policy reaction functions that could be viewed as dovish, advocating that recent shocks be ignored: “What impact will rising short-term rates actually have? We’ll have to wait and see.”
He raised the issue but then responded by pointing out that underlying inflation has been “very mild, very stable.” “In core inflation, after removing volatile items heavily influenced by energy, the rest has remained very stable. I believe this situation will continue.”