「Fed's Whisperer」: Powell's Policy Reaction Function Shifts to be Less Dovish

BlockBeats News, August 5th, in the "Fed's Megaphone," Nick Timiraos wrote that U.S. Treasury Secretary Besent's policy reaction function has shifted to be less dovish. His comments this year suggest that the Fed should continue to hold rates steady. Earlier this year, Besent cited a model indicating that the Fed's rate level above the neutral rate could range from just over 25 basis points to over 100 basis points.

On August 4th, Besent put forward two points. Firstly, he defended last week's decision by Powell not to outline any policy reaction function: "I think every meeting should be open, and market participants should make their own judgments. I think Powell wants to keep options open to achieve the best outcome." Secondly, he did present a set of policy reactions that could be seen as dovish and argued for ignoring recent shocks: "What impact will the recent rise in short-term rates have? We will have to wait and see."

He raised the question but then responded by pointing out that underlying inflation is "very mild. Very stable." "Core inflation, excluding volatile items heavily influenced by energy, has been very stable. I think this situation will continue."