US Treasury Secretary Bessent Rules Out Issuing More Long-Term Debt for Now

US Treasury Secretary Scott Bessent said it wouldn't make sense to increase long-term debt issuance given current interest rates. He criticized the Fed for being "frozen" on the interest rate decision. Bessent hopes interest rates for all maturities will decrease as inflation moderates. He also criticized the Fed for being paralyzed and not looking forward, saying they failed the US public in 2022.

US Treasury Secretary Scott Bessent has expressed reservations about increasing the issuance of long-term securities, given the current interest rate environment. In a recent interview with Bloomberg Television, Bessent argued that it would be counterproductive to ramp up sales of longer-term securities at the present yields [1].

Bessent's stance reflects a broader concern about the Federal Reserve's (Fed) approach to interest rates. He criticized the Fed for being "frozen" on the interest rate decision, suggesting that the central bank has not been proactive in adjusting rates to align with economic conditions. Bessent hopes that interest rates across maturities will decrease as inflation moderates, but he believes that the Fed has not been forward-looking enough in its policies [1].

Bessent's comments come amidst ongoing pressure on the Fed from U.S. President Donald Trump, who has called for significant reductions in interest rates, advocating for a range between 1% and 2% [2]. Trump's proposal is part of a broader economic strategy aimed at stimulating growth and creating jobs, but his advocacy for lower rates has been met with caution from Fed Chair Jerome Powell. Powell has emphasized the need for a measured approach in adjusting interest rates, highlighting the importance of careful policy adjustments [2].

The potential impact of Trump's call for lower interest rates extends beyond traditional financial markets. A reduction in interest rates could infuse greater liquidity into various markets, including risk-on assets like major cryptocurrencies such as Bitcoin and Ethereum. Historical patterns suggest that dovish Fed guidance often aligns with increased trading volumes and capital inflows into these digital assets [2].

Bessent's criticism of the Fed for being "paralyzed" and not looking forward is a stark contrast to the Fed's cautious approach to rate cuts. The Fed has signaled it will move cautiously on rates, after a series of aggressive rate hikes to counter the biggest inflation surge since the 1970s and 1980s. Policymakers remain wary that cutting too quickly could reignite inflation, particularly in light of Trump's own tariff threats, which risk fueling price increases [2].

The debate over interest rates highlights the ongoing tension between political pressures and the independent role of the Federal Reserve. While Trump's calls for lower rates are driven by a desire to stimulate the economy, Powell's cautious approach reflects the Fed's mandate to maintain price stability and promote full employment. This dynamic underscores the importance of balancing short-term economic goals with long-term financial stability.

References:
[1] https://news.bloomberglaw.com/banking-law/bessent-says-current-yields-mean-no-sense-in-long-debt-ramp-up
[2] https://www.ainvest.com/news/trump-calls-1-2-interest-rates-pressuring-fed-2506/