U.S. Treasury Secretary Scott Bessent on Sunday urged the Federal Reserve to move faster in cutting interest rates, saying inflation is easing and parts of the economy, especially the housing market, are already in recession.
Speaking on CNN’s *State of the Union*, Bessent said the broader economy remains solid, but certain sectors are clearly struggling, with the housing market taking the hardest hit. He explained that high mortgage rates had effectively frozen home sales, making it difficult for first-time buyers to afford homes.
Bessent added that the Federal Reserve’s policies had created significant distributional problems, noting that low-income households are suffering the most because they tend to have debts rather than assets. Data from the National Association of Realtors shows pending home sales were flat in September.
He warned that if interest rates remain elevated, the slowdown could easily spill over into construction, retail, and other job-rich industries directly tied to the real estate sector.
### Bond Markets Signal Rate Cuts Ahead
According to Bessent, bond markets are also flashing warning signs. Yields on two-year Treasuries have fallen below the Fed’s benchmark rate—a classic signal that investors expect rate cuts soon.
### Easing Inflation Opens Room for Cuts
Bessent highlighted that inflation has cooled more than expected, providing the Federal Reserve with room to ease monetary policy. Government data shows consumer prices rose by just about 3% year-over-year in September, marking the slowest growth rate in more than two years and only one percentage point above the Fed’s target of 2.0%.
Prices for energy and food—key contributors to recent price surges—have stabilized, and inflation in core prices (excluding volatile items) continues to ease.
In Bessent’s view, prices have already turned a corner, and maintaining high interest rates is now doing more harm than good. He pointed out that the U.S. economy has clearly moved past the overheating phase.
### Fiscal Improvements Support Rate Cuts
Bessent also cited improvements in fiscal management as another strong reason for the Fed to begin cutting rates. The deficit for GDP has shrunk from 6.4% to 5.9% due to spending cuts during the previous administration, indicating the government is borrowing less. This reduces pressure on prices and creates more room for a looser monetary stance.
### Market Expectations Shift
The CME FedWatch Tool’s futures pricing shows traders now expect a 70% chance of a rate cut by early 2026, up from 45% just a month ago. Bond yields have fallen significantly as investors grow confident that inflation is cooling enough and that looser policy is imminent.
### Growing Calls for Fed to Change Direction
Bessent joins a chorus of economists and market participants calling for the Fed to shift gears. Fed Governor Stephen Miran, one of two dissenting members in a recent vote, cautioned that keeping interest rates elevated for too long could alter the economy’s trajectory. Miran, along with some other officials, advocated for a 50-basis-point cut rather than the 25-basis-point reduction the Fed ultimately approved.
### Fed’s Cautious Stance Under Pressure
Despite these calls, the Fed chair has pledged to hold off on further rate cuts this December, stating that policymakers will need more proof of sustained disinflation before acting more aggressively.
Meanwhile, this cautious stance faces growing pressure from both the administration and the markets. Investors expect that, if current conditions persist, the Fed will be constrained in its investments and may allow deeper rate cuts in January 2026.
Economists warn that postponing such cuts could worsen downturns in the housing sector and hinder job growth across industries dependent on favorable interest rates.
### Support for December Rate Cut Grows
Federal Reserve Governor Christopher Waller has reiterated his support for a rate cut at the Fed’s December meeting. In an interview with Larry Kudlow on Fox Business Network, Waller stated:
> “The biggest concern we have right now is the labor market. We know inflation is going to come back down, so this is why I’m still advocating that we cut policy rates in December, because that’s what all the data is telling me to do.”
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