Bessen questions the Federal Reserve's judgment: The trend of the two-year U.S. Treasury yield indicates that the benchmark interest rate is too high

According to the Zhitong Finance APP, U.S. Treasury Secretary Becerra has questioned the judgment of Federal Reserve policymakers regarding interest rates and reiterated his belief that the two-year U.S. Treasury yield signals that the benchmark rate is too high. Becerra stated in an interview on Thursday, "The Federal Open Market Committee (FOMC) seems to have a judgment bias in its interest rate decisions."

Becerra has emphasized multiple times that he only comments on the Federal Reserve's past monetary policy and will not discuss its future decisions. Nevertheless, Becerra insists that "the two-year Treasury yield is conveying a signal that overnight rates are 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%.

Becerra stated, "Our real interest rates are very high right now," referring to inflation-adjusted rates. He added, "But again, this is their (the Federal Reserve's) decision. If they do not cut rates, it may mean that the cut in September will be larger."

The interest rate futures market shows that traders are betting the Federal Reserve will cut rates by at least 25 basis points at the September meeting, while no changes are expected at the July meeting.

When asked if he agreed with President Trump’s view that the Federal Reserve should lower rates by three percentage points, Becerra did not respond directly. He reiterated that the market is signaling a rate cut and added that during his first term, Trump "was more correct than the Federal Reserve regarding the timing of rate cuts."

Regarding Powell

When asked about the call from government housing finance chief Bill Pulte for Federal Reserve Chairman Powell to resign, Becerra declined to comment, only stating that the Federal Reserve should "control spending like other agencies." It is reported that Bill Pulte previously accused Powell of making false statements regarding the renovation of the Federal Reserve building during a congressional hearing.

Becerra also stated, "After Powell's term ends in May 2026, there are many excellent and capable candidates who can succeed him." When asked if he might be a candidate himself, he replied, "I will not disclose the content of private conversations."

Becerra also hinted that he hopes Powell will completely leave the Federal Reserve system next May. 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. Becerra stated, "We expect to fill two seats next year."

Do political factors influence Federal Reserve decisions?

Becerra pointed out that the expectations of Federal Reserve policymakers seem to differ based on their appointing authorities. He said, "There are obvious divisions in the so-called dot plot." He referred to the Federal Reserve officials' predictions of future interest rate paths. He further added, "There is a divide between officials appointed by Trump and those not appointed by Trump. You can interpret what this means for yourselves."

It is noteworthy that the Federal Reserve's dot plot predictions are presented anonymously, so the public cannot openly judge which official made the predictions. However, Trump-nominated governors Christopher Waller and Michelle Bowman have previously indicated that the Federal Reserve may cut rates as early as July Federal Government Debt

Before Congress is about to pass Trump's signature tax and spending bill, Bessent pointed out that the bill includes provisions to raise the federal debt ceiling. He stated that the additional $5 trillion in debt capacity "should support us all the way to 2027."

The U.S. Treasury has been fulfilling federal payment obligations through special accounting measures since January, while ensuring it does not exceed the statutory debt limit. Once the bill is signed into law, the Treasury is expected to increase short-term Treasury bill sales to replenish its cash reserves.

In terms of broader debt issuance strategy, Bessent stated that considering the two-year Treasury yield indicates overnight rates are relatively high, "we will take that into account," but did not elaborate further. He also mentioned, "Our debt management process is very standardized and orderly, but we will consider these responses."

Bessent stated, "We will decide how to structure the debt maturity in the coming months." The Treasury's next quarterly refinancing announcement typically reveals any changes in issuance strategy, which is expected to be released on July 30.

Additionally, when asked whether he agrees with the view expressed by Stephen Miran, chairman of the White House Council of Economic Advisers, that "Trump's policies will reduce the fiscal deficit by $11 trillion over the next decade," Bessent declined to comment. He stated, "Predicting federal borrowing ten years out is very difficult. There are many variables involved. But I am confident that we are moving in the right direction."