Treasury Secretary Scott Bessent stated on Friday that the newly appointed Federal Reserve Chair, Kevin Walsh, is not under pressure to cut interest rates.
At the Reagan National Economic Forum in California, when asked if he agreed with President Trump's remarks that Walsh should maintain independence, Bessent responded, "One hundred percent."
Bessent mentioned that he had breakfast with Walsh this week, describing it as "a new day for the Federal Reserve."
"This is an update; change is good, and I believe we are getting a new sheriff," Bessent said.
The Treasury Secretary noted that he did not want to speak ahead of Walsh but anticipated that Walsh would eliminate forward guidance—the practice where Federal Reserve officials provide strong signals about future interest rate decisions.
"I also think we will return to fundamentals in terms of accountability and credibility," Bessent added.
Bessent expressed that despite high inflation and interest rates, he believes this is an excellent time for Walsh to assume the role of Federal Reserve Chair. He pointed out, "A lot of media tends to sensationalize, and if there is any success in my 35-year career on Wall Street, it has often been by going against the headlines."
The bond market currently prices in one 25-basis-point rate hike this year. Federal Reserve officials currently lean toward keeping rates unchanged but are closely monitoring whether inflationary pressures will expand, potentially forcing them to raise rates.
Bessent mentioned that bond yields peaked the day before Walsh was sworn in as Federal Reserve Chair last Friday.
"I'm not saying whether this is causation or correlation, but rates peaked the day before Chair Walsh was sworn in," he said.
At Walsh's swearing-in ceremony, President Trump remarked, "I want Kevin to be completely independent. Don't look at me, don't look at anyone else, just do your own thing and get the job done."
This statement followed Trump's previous sharp criticism of former Chair Jerome Powell for cutting rates "too late."
Inflation data provides the latest evidence of the task facing Walsh: the Consumer Price Index rose nearly 4% in April, and inflation appears to be broadening as higher input costs from oil prices are passed on to consumers. Meanwhile, the Producer Price Index surged 6% in April, driven by rising energy prices.
The bond market has priced in expectations of a rate hike, with the two-year Treasury yield 25 basis points above the Federal Reserve's current benchmark rate range of 3.5% to 3.75%. However, traders see a 36% probability of a rate hike in December.
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