"Fed Whisperer": Bessent's Policy Reaction Function Shifts to a Less Dovish Stance

Odaily Planet Daily News "Fed Whisperer" Nick Timiraos reported that U.S. Treasury Secretary Bessent's policy reaction function has shifted to a less 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 just over 25 basis points to more than 100 basis points above the neutral rate. Today (August 4), he made two points. First, he defended Warsh's decision last week not to elaborate on any policy reaction function: "I think every meeting should be open, and market participants should draw their own conclusions... I believe Warsh wants to keep his options open to achieve the best outcome."

Second, he did propose a policy reaction function that could be viewed as dovish, arguing that recent shocks should be ignored: "What impact will the rise in short-term rates actually have? We'll see." He raised the question but then responded by pointing out that underlying inflation is "very mild... very stable." "Excluding the more energy-sensitive volatile components, the rest of core inflation has been very stable. I think this will continue."