Mnuchin Predicts 75-100 Basis Point Fed Rate Cut in 12 Months

Former US Treasury Secretary Steven Mnuchin, now the founder of Liberty Strategic Capital, recently shared his expectations regarding the Federal Reserve's monetary policy direction. Mnuchin anticipates that the Fed will reduce interest rates by a total of 75 to 100 basis points over the next 12 months. This prediction is based on the current economic climate and the Fed's cautious approach to managing inflation and economic growth.

Mnuchin noted that Fed Chairman Jerome Powell is adopting a "wait-and-see" approach, allowing the market to gradually adjust to the anticipated rate cuts. He expects the reduction in interest rates to be gradual, with a total decrease of about 100 basis points, barring any unexpected developments. Mnuchin's cautious outlook is influenced by the enduring effects of inflation, which was previously described as temporary.

In addition to his comments on interest rates, Mnuchin discussed the potential for new trade deals under the Trump administration. He expects several trade agreements to be announced soon, which could lead to a postponement of some tariff decisions made in July. Mnuchin emphasized that the tariffs implemented so far have not contributed to inflation, supporting the market's expectation of low interest rates. Ongoing negotiations with countries such as China, India, and Japan are also expected to influence future trade policies.

Mnuchin also touched on the topic of TikTok, expressing his belief that the President will reach an agreement regarding the platform. He suggested that a solution involving new investors becoming partners in the company, rather than a direct sale, is more likely. Mnuchin mentioned that his own investment interests are currently inactive.

Regarding long-term interest rates, Mnuchin stated that they are also pricing in future Fed cuts. He predicted that 10-year bond yields could fall to the 4% – 4.25% range, but it is unlikely to fall below 4%. Mnuchin does not anticipate a significant economic slowdown, noting that the market is operating with this outlook in mind.

Mnuchin emphasized the importance of the "big tax package" expected to pass the Senate, arguing that extending the Trump-era tax cuts is crucial for the market. He acknowledged that long-term debt and deficits are serious issues but suggested that deficits could be controlled if economic growth remains around 3%. Otherwise, cuts in public spending would be necessary.