The White House continues to press the Federal Reserve to lower interest rates, drawing criticism from a former Treasury official. Treasury Secretary Scott Bessent said bond market signals suggest the Fed should act, citing the two-year Treasury rate trading below the fed funds rate as evidence markets anticipate cuts.
Bessent specifically highlighted the dynamic where the 2-year Treasury yield, around 3.56% as of Thursday morning, sits below the effective fed funds rate of 4.33%. He told Fox Business this configuration indicates a market expectation for lower rates. Treasury Secretary Scott Bessent says bond yields are signaling it's time for the Fed to cut rates.
President Donald Trump has repeatedly urged the central bank to ease monetary policy, stating publicly that he believes he understands monetary policy better than current Fed leadership. These calls come ahead of the Federal Open Market Committee meeting next week.
However, Lawrence Summers, who previously served as Treasury Secretary, warned that the administration's public pressure on the Fed is counterproductive. He called the White House's approach "misguided guidance."
Summers argued that the administration's "jawboning" creates a dilemma. Either the Federal Reserve maintains its independent stance and ignores the pressure, resulting in no change to short-term rates, or the market reacts negatively to the perceived political interference, potentially causing long-term interest rates to rise.
Kathryn Judge, a Columbia Law School professor who studies the Fed, noted it is not unusual for a president to hold a view on interest rates. She added that the challenge arises when a president expresses such views while also claiming authority to remove the Fed chair.
The Federal Reserve has stated its path will depend on economic data, particularly inflation figures. Fed Chair Jerome Powell has indicated the central bank can afford to be patient regarding rate adjustments.
Markets currently assign a low probability to a rate cut at the upcoming May 7 meeting. The CME FedWatch Tool suggests June is the earliest date investors widely anticipate a potential policy shift.
The administration remains focused on the ten-year Treasury yield as an economic indicator. Bessent attributed a recent spike in that yield to technical factors involving "overleveraged market players."
