Bessent has publicly supported revisiting the Federal Reserve's long-standing 2% inflation target in the future. He stated that once U.S. inflation sustainably returns to 2%, there should be a discussion on whether to change it to a target range.
U.S. Treasury Secretary Scott Bessent supports the idea that once the U.S. sustainably brings price increases back to the 2% level, the Federal Reserve’s 2% inflation target should be reconsidered.
"Once we return to 2% – and I think it is within sight – we can have a discussion about whether adopting a range might be more prudent," Bessent said in an interview on the 'All-In Podcast.' "After we re-anchor that target, we can discuss whether to move to a range."
In the December 22-released interview, Bessent suggested discussions could revolve around shifting to a range of 1.5% to 2.5%, or 1% to 3%. He noted, "At that point, we will be able to have a very robust discussion."
The Federal Reserve policymakers formally adopted the current 2% inflation target in 2012, a goal also followed by many central banks globally. Bessent stated, "Pursuing decimal-level precision is absurd." However, he pointed out that changing the target while inflation remains above it could create the impression that "you always adjust upward when actual levels exceed the target."
The interview was recorded on December 18, following the release of November’s Consumer Price Index (CPI) data, which showed CPI rising 2.7% year-on-year. The Federal Reserve uses another metric – the so-called Personal Consumption Expenditures (PCE) price index. Data revealed that PCE rose by 2.8% over the 12 months ending in September.
Public 'Suffering'
"Before reaching the target and maintaining credibility, it is very difficult to re-anchor (inflation expectations)," Bessent said. He also acknowledged households' concerns about affordability – anxieties that surfaced during the off-year elections held in November and contributed to Republican losses.
The Treasury Secretary remarked, "We understand the American people are experiencing pain." Price levels "have become extremely high," which he attributed to the Biden administration. He argued that inflation is "starting to come down," partly due to falling rents – a trend he linked to what he described as a surge in undocumented immigration driving rent increases.
Although some economists noted that recent CPI reports might suffer from measurement issues due to federal government furloughs during the shutdown in October and early November, Bessent stated that he regarded it as "a fairly accurate figure." While some sub-indices, including energy, had risen, observable real-time data showed they were now declining.
Bessent also suggested that stabilizing budget deficits could provide a rationale for lowering interest rates. He cited the example of pre-euro Germany, where the Bundesbank agreed to "pave the runway" and lower rates in exchange for the government pursuing a non-profligate "reasonable fiscal balance."
The German model
"This is something we can do here," he said. The Bundesbank and the government "once worked hand in hand." He also noted that, prior to World War II, the U.S. Treasury "had a seat at the Federal Reserve's decision-making table."
The finance minister stated, "If we can stabilize the budget deficit, or even reduce it, that will help contain inflation."
Bessent has been helping President Trump select candidates to replace Fed Chair Powell. He once again criticized the U.S. central bank for excessively and prolonged expanding its balance sheet after the COVID-19 pandemic.
"There is no doubt that large-scale asset purchases should be part of what is called the central bank’s toolkit," he said. He also supported the Federal Reserve using emergency powers to aid strategic industries when necessary, stating that the collapse of the aviation industry during the pandemic was "not beneficial to anyone." As for the broader so-called quantitative easing program, "I believe it lasted far too long, far too long."
Editor /rice