Fed Mouthpiece: Bessent’s Policy Reaction Function Shifts to Be Less Dovish

"Fed Whisperer" Nick Timiraos wrote in a recent article that U.S. Treasury Secretary Scott Bessent’s policy reaction function has shifted to become less dovish. His remarks this year suggest the Federal Reserve should keep interest rates steady. Earlier this year, Bessent cited models saying the gap between the Fed’s policy rate and the neutral rate could range from more than 25 basis points to over 100 basis points. On August 4, Bessent laid out two key views. First, he defended Federal Reserve Governor Christopher Waller’s decision last week not to elaborate on any policy reaction function: “I think every meeting should be open, and market participants should judge for themselves. I think Waller wants to keep his options open to achieve the best outcome.” Second, he did propose a policy reaction function that could be characterized as dovish, arguing that recent shocks should be overlooked: “What exactly will be the impact of short-term rate hikes? We will have to wait and see.” He raised that question, then responded by pointing out that underlying inflation is “very mild, very stable.” “Core inflation, after excluding volatile items heavily affected by energy, has remained very stable. I believe this situation will continue.”