U.S. Treasury Secretary Scott Bessant said he was not calling for a series of rate cuts from the Federal Reserve, but rather pointed out that models suggest the "neutral" rate is about 1.5 percentage points below its current level.

"I'm not telling the Fed what to do," Bessant said in an interview on Thursday (August 15), referring to his comment the day before that the Fed "could enter a series of rate cuts starting now."

"What I'm saying is that it would take about 150 basis points of rate cuts to reach the neutral rate," Bessant said Thursday.

The neutral rate is the level at which policy neither stimulates nor suppresses economic activity. Federal Reserve Chairman Jerome Powell said on July 30 that there is "a range of views on what the neutral rate is in today's economy," and his own estimate suggests that current policy is "moderately restrictive."

"If you believe in the neutral rate, then there is indeed room for a series of rate cuts," Bessant said. "I'm not calling for a rate cut. I've never called for a rate cut. I'm just pointing out that the model for the neutral rate is about 150 basis points below where it is today."

The Federal Reserve maintained its target range for its benchmark interest rate at 4.25% to 4.5% last month. The median estimate of the long-run neutral rate among Fed officials is 3%. Powell and many of his colleagues have argued for months that more time is needed to assess the impact of President Trump's tariff increases on inflation and inflation expectations.

"Direct" Pressure

Trump has frequently criticized Powell for keeping interest rates unchanged. After taking over as Treasury Secretary, Bessant said he would only discuss the Fed's past actions, not future ones, but he has since commented on what markets expect policymakers to do. This week, he began citing economic models and repeatedly hinted at the possibility of a 50 basis point rate cut at the Fed's September meeting.

"Treasury secretaries are not supposed to comment on the neutral rate," said Julia Coronado, founder of the research firm MacroPolicy Perspectives and a former Federal Reserve economist. "Comments like these from the highest-ranking economic official in the administration are direct, public pressure on the Fed to influence its policy direction."

Market confidence in a quarter-point rate cut at the September meeting also declined slightly. This shift came after the release of U.S. producer price inflation data, which showed wholesale prices rising at their fastest pace in three years.

In an interview on Wednesday (August 13), Bessant said that any model suggests interest rates should be 150 or 175 basis points lower. He also said that if Fed officials had known that labor market data, released two days after the meeting, would be significantly revised, they might have cut rates. "I think we could have cut rates in June and July," Bessant said.

Which model?

"I don't know which model he's referring to," said Jim Bianco, president of Bianco Research and a longtime Fed and Treasury watcher. "No model that I know of suggests interest rates should be that low," he said, referring to the Fed's benchmark interest rate.

Other indicators that guide the Fed's interest rate, such as the Taylor rule, don't suggest lowering the key rate by 150 to 175 basis points from its current level, Bianco said. He added that there have been instances of "lobbying the Fed chair" over the past few decades, and that they "can make their point," but that shouldn't change the central bank leader's position.

Bessant reiterated Thursday that, given the backdrop of weak jobs data and the absence of rate cuts in recent months, "perhaps a 50 basis point cut in September is reasonable."

"It would be disingenuous to say he's expressing an economic view," Coronado said. "This is not an area where he should be expressing his opinion."