Reasons why Besant believes the Federal Reserve should cut interest rates
Besenet believes that the Federal Reserve should cut interest rates, citing that the 2-year U.S. Treasury yield (approximately 3.57%) is lower than the federal funds rate (4.25%-4.50%), and the spread continues to widen. The market expects the Federal Reserve to cut rates by 1 percentage point, far exceeding policymakers' estimates, as the economy weakens due to Trump's tariff policy
Compared to Trump's "orders," U.S. Treasury Secretary Janet Yellen, who comes from a hedge fund background, has provided a more "market-oriented" logic for interest rate cuts:
Currently, the 2-year U.S. Treasury yield is significantly lower than the federal funds rate.
On Thursday, the 2-year U.S. Treasury yield was about 3.57%, down approximately 5 basis points that day, which is about 0.75 percentage points lower than the daily effective federal funds rate of 4.33%. The Federal Reserve's policy rate is set in the range of 4.25% to 4.50%, and this range has been maintained since a one percentage point cut at the end of last year.
The spread between the Federal Reserve's rate and the 2-year Treasury yield has continued to widen over the past two months, and this spread is an indicator of the bond market's expectations for the direction of monetary policy. Meanwhile, fixed-income investors in U.S. Treasuries and interest rate futures have shifted to betting that the Federal Reserve will cut rates by one percentage point this year—this cut is twice the median of the latest estimates from Federal Reserve policymakers—because the economy is weakening under the impact of Trump's tariffs.
