“Fed Whisperer”: Bessent’s Policy Reaction Function Shifts Away from Dovish Stance

Odaily News – “Fed Whisperer” Nick Timiraos said in an article that U.S. Treasury Secretary Bessent's policy reaction function has shifted away from a dovish stance. His remarks this year suggest that the Federal Reserve should continue to hold interest rates steady. Earlier this year, Bessent cited models indicating that the Fed's rate level could be anywhere from more than 25 basis points to over 100 basis points above the neutral rate. Today (August 4), he raised two points. First, he defended Warsh's decision last week not to articulate any policy reaction function: "I think every meeting should be open, and market participants should judge for themselves... I think Warsh wants to keep his options open to achieve the best outcome."

Second, he did put forward a set of policy reaction functions that could be seen as dovish, arguing that recent shocks should be ignored: "What impact will rising short-term interest rates really have? We will have to wait and see." He raised this question, but then responded by pointing out that underlying inflation is "very mild... very stable." "In core inflation, excluding volatile components heavily influenced by energy, the rest has been very stable. I think this will continue."