Nick Timiraos, often referred to by Chinese crypto media as the Fed’s go-to signal watcher, said U.S. Treasury Secretary Bessent’s policy reaction function has shifted and no longer looks as dovish as before. According to Timiraos, Bessent’s comments this year have pointed to a view that the Federal Reserve should keep rates unchanged. Earlier this year, Bessent cited a model suggesting the Fed’s policy rate could be anywhere from more than 25 basis points to more than 100 basis points above the neutral rate. On Aug. 4, Bessent made two notable points. First, he defended Warsh’s decision last week not to spell out any policy reaction function, saying each meeting should remain open and market participants should make their own judgments, while Warsh likely wanted to preserve flexibility for the best outcome. Second, Bessent did lay out a framework that could still be read as dovish, arguing that recent shocks should be looked past. He questioned what impact short-term rate increases would actually have, then answered by saying underlying inflation was “very subdued” and “very stable,” adding that core inflation excluding the more energy-sensitive volatile components had remained stable and that he expected that to continue.
Nick Timiraos said U.S. Treasury Secretary Bessent’s policy reaction function has shifted and is no longer as dovish as it once appeared.
According to Timiraos, Bessent’s comments this year have implied that the Federal Reserve should continue to leave interest rates unchanged. Earlier in the year, Bessent cited a model showing that the Fed’s policy rate may be more than 25 basis points to more than 100 basis points above the neutral rate.
Bessent’s two points on Aug. 4
Timiraos said Bessent first defended Warsh’s decision last week not to lay out any policy reaction function. “I think every meeting should be open, and market participants should make that judgment themselves... I think Warsh wants to preserve optionality to get the best result,” Bessent said.
Bessent also presented a framework that could still be seen as dovish, while arguing that recent shocks should be ignored. “What impact will higher short-term rates actually have? We will wait and see,” he said.
He then answered that question by pointing to underlying inflation, which he described as “very subdued... very stable.” Bessent added: “Within core inflation, once you strip out the more energy-sensitive volatile components, the rest has been very stable. I think that will continue.”
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