Treasury Secretary Scott Bessent has sharply criticized Federal Reserve Chair Jerome Powell for not acting decisively in a challenging economic climate. His remarks come just days before the Fed’s upcoming policy meeting, where many believe a much-needed interest rate cut is overdue. This scrutiny underscores the growing frustration over the central bank’s hesitance, particularly amid the ongoing federal government shutdown, which has now entered its third week, straining economic indicators.
Bessent’s interview, which gained traction across social media, questioned the Fed’s current strategy. He argued, “They said that they don’t have data… if you’re flying blind, they’ve cut twice,” referring to previous instances where the Fed enacted precautionary cuts during turbulent economic times. His assertion suggests a belief that similar conditions today warrant a proactive response.
Drawing parallels to past economic episodes in 1995 and 1998, Bessent maintains that the Fed should lean into its historical precedent of “insurance” rate cuts when visibility into economic conditions is poor. His call for a third cut, as he phrased it, is part of a broader argument that the Fed needs to adjust its stance as fourth-quarter GDP is projected to suffer significantly due to the shutdown. “We should finish the cutting cycle or keep going,” he urged, encapsulating the urgency of his call.
The market response to this debate is telling. Gold and silver prices both increased substantially, reflecting a strong belief among traders that the Fed will act decisively to alleviate restrictive conditions affecting the economy. The view that the current 5.25% target rate is too high under the present economic strain is gaining momentum.
At the heart of Bessent’s critique is the impact of Congress’s gridlock, often referred to as the “Schumer shutdown.” With around 750,000 federal workers furloughed and critical economic data being withheld, the Fed finds itself in a precarious position. Bessent echoed the sentiment that this uncertainty hinders the Fed’s ability to make informed decisions — urging that “if you’re flying blind, you don’t hold the wheel steady.”
Powell’s caution, rooted in concerns about unclear data and enduring inflation pressures, is under scrutiny. Bessent argues that such reasoning disregards how the Fed has typically behaved in similar situations. “They cut with less rationale before,” he remarked, suggesting that Powell’s hesitance contradicts the Fed’s established framework for decision-making.
Economically, the stakes are high. If the Fed opts not to cut rates, it risks exacerbating current conditions. FedWatch data indicates a 92% likelihood of a rate reduction at the upcoming meeting, with analysts cautioning that failing to act could incite greater turmoil in markets. As Carla Mendez of Hamilton & Grove Asset Management noted, maintaining the status quo could shock the economic system more severely than a reduction.
Moreover, the political fallout is palpable. Bessent’s assertion that inaction contradicts prior decisions speaks to a broader concern about the Fed’s credibility. As interest rates remain elevated, borrowing is already on the decline. The National Federation of Independent Business reported a 4.2% drop in small business loans, while mortgage applications have reached their lowest point since 1996. These trends could lead to a more serious downturn if not addressed.
Assistance programs like SNAP, which supports over 42 million Americans, also face impending threats. Should the government shutdown persist, these programs may need to suspend benefits. This would likely deepen hardships for lower-income families and further cloud the economic outlook, particularly for the vital fourth quarter.
As the Fed’s meeting approaches, Bessent’s message is clear: hesitation is no longer an option. “They must do the right thing,” he asserted, calling for a reduction in rates to avert worsening economic damage. This moment serves as a critical juncture for the Fed, where clarity and decisive action are crucial for stabilizing the economy amidst uncertainty.
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