Bessent: "Trump Won't Demand Fed Interest Rate Cuts"

Focus on 10-Year Treasury Yield and Energy Prices to Lower Inflation

Treasury Secretary Scott Bessent stated that President Donald Trump will not be requesting the Federal Reserve to lower interest rates. Despite previous indications that Trump had been pressuring the Fed to cut rates, Bessent clarified that these claims were inaccurate. During an interview with Fox Business, Bessent emphasized that while he would refrain from discussing the specific actions of the Fed, his focus and that of Trump remained on reducing long-term interest rates, particularly the 10-year U.S. Treasury bond yield.

Bessent explained that reducing the 10-year Treasury yield was crucial for improving overall market conditions, as it serves as a benchmark for broader interest rates. He highlighted that the current yield, which had risen to approximately 4.4% from 3.6% in September of the previous year, was too high and not conducive to economic stimulation. The higher long-term bond yields, according to Bessent, indicate a broader issue in the financial markets that requires addressing, especially given the significant impact on the cost of borrowing.

However, Bessent noted that lowering the 10-year yield would be challenging due to the U.S. government’s fiscal deficit. A reduction in bond yields would likely require a reduction in U.S. Treasury bond issuance, but this could prove difficult given the government’s current debt obligations.

Strategic Focus on Reducing Energy Costs and Inflation Expectations

Bessent also mentioned that addressing inflation through a decrease in energy prices could significantly lower inflation expectations. He pointed out that energy prices are a key indicator of long-term inflation and that reducing costs for gasoline and heating oil could help bring down inflation. Lower energy prices, he stated, would be beneficial not only for consumers but also for the broader economic climate, fostering a more stable market environment.

Additionally, Bessent stressed the importance of fiscal policies, particularly tax cuts, which are set to expire at the end of the year. He expressed the administration's goal to make these cuts permanent, believing that such measures would spur greater private investment and help ease the pressure on long-term interest rates and the strong dollar.

Japan's Plans for Further Interest Rate Increases

Meanwhile, Japan is taking a different approach with its monetary policy. The Bank of Japan (BoJ), which raised its interest rate from 0.25% to 0.5% last month, is now considering further increases. Naoki Tamura, a member of the BoJ's policy board, stated that the bank may raise rates to 1% by March 2025. Tamura further elaborated that the BoJ needs to raise the interest rate to at least 1% in the latter half of the 2025 fiscal year to maintain stability in Japan’s economy.

Tamura’s comments, made during a speech, reflect the BoJ’s internal debate on the pace of interest rate hikes. While the Bank has yet to specify the exact timing of the next rate increase, there is significant market speculation that an additional hike could come as early as this summer. The Japanese yen responded strongly to Tamura's remarks, appreciating sharply against the U.S. dollar from 153 yen to 151 yen, marking its highest level since December of the previous year.

U.S.-Japan Economic Cooperation

Bessent has also been in close communication with Japan’s central bank and government officials. On February 5, he held a call with Bank of Japan Governor Kazuo Ueda to discuss macroeconomic priorities. The Treasury Secretary expressed his hopes for continued close cooperation between the U.S. and Japan in addressing global economic challenges. Bessent had also met virtually with Japanese Finance Minister Katsuya Okada on January 28, where they agreed to work together more closely within the G7 and G20 frameworks.

While the U.S. is focusing on fiscal policy and inflation expectations, Japan’s proactive interest rate adjustments indicate a divergence in their respective economic strategies. Both nations are taking steps to navigate inflation and economic growth in their own ways, with the U.S. aiming for market stability through energy cost reductions and permanent tax cuts, while Japan continues to implement tighter monetary policies to combat inflationary pressures.

As these countries continue to adjust their monetary and fiscal policies, their approaches will have significant global economic implications, particularly for international currency markets and long-term investment strategies.