Besenet publicly criticizes the Federal Reserve for "judgment errors": The two-year U.S. Treasury yield warns that interest rates are too high
U.S. Treasury Secretary Scott Basset questioned the Federal Reserve's judgment on interest rates, believing that the two-year Treasury yield indicates that the benchmark rate is too high. He pointed out that the Federal Open Market Committee has biases in its interest rate decisions and emphasized that the two-year yield conveys a signal that the overnight rate is too high. Basset also mentioned that the Federal Reserve should control spending and hinted at a desire for Powell to completely leave the Federal Reserve next year
According to the Zhitong Finance APP, U.S. Treasury Secretary Scott Basset publicly questioned the judgment of Federal Reserve policymakers on interest rates on Thursday, reiterating that the trend of the two-year Treasury yield indicates that the benchmark interest rate level is too high.
Basset stated in an interview on Thursday, "The Federal Open Market Committee (FOMC) seems to have a judgment bias in its interest rate decisions."
Although Basset emphasized multiple times that he only comments on past monetary policy, he insisted that "the two-year yield is signaling that the overnight rate is too high." Currently, the Federal Reserve's target range for the federal funds rate is 4.25%-4.5%, while the two-year Treasury yield has fallen to around 3.76%.
When asked about the call from government housing finance chief Bill Pulte for Federal Reserve Chairman Jerome Powell to resign, Basset declined to comment, only stating that the Fed should "control spending like other agencies." It is reported that Pulte previously accused Powell of making false statements regarding the renovation of the Federal Reserve building during a congressional hearing.
Regarding potential successors after Powell's term ends in May 2026, Basset stated, "There are several excellent candidates." When asked if he intended to run for the position, he said, "I won't disclose the content of private conversations."
Additionally, Basset hinted at hoping for Powell to completely leave the Federal Reserve system in May next year—although Powell's term as a governor can last until 2028, if he chooses to remain after stepping down as chairman, he would only need to replace the seat of governor Adriana Kugler in January 2026.
Basset stated, "We expect to fill two positions next year."
As the House reviews President Trump's signature tax reform legislation, Basset pointed out that the legislation includes provisions to raise the federal debt ceiling, with a $5 trillion increase "ensuring fiscal operations continue until 2027."
Since January, the U.S. Treasury has been taking special accounting measures to maintain federal payment capacity within the statutory debt limit. After the bill takes effect, it is expected to issue more short-term Treasury bonds to replenish cash reserves.
Discussing broader debt issuance strategies, Basset stated that given the two-year Treasury yield indicates that the overnight rate is too high, "we will take this factor into consideration," but did not provide further specifics. He also mentioned, "Our debt management process is very regular and systematic, but we will consider these unexpected situations."
"In the coming months, we will decide how to set the debt maturity structure," he said. The Treasury's next quarterly financing announcement (which usually announces adjustments to issuance strategies) is scheduled for July 30
