The Federal Reserve announced on Wednesday (September 17th) that it would lower the federal funds rate by 25 basis points, in line with market expectations. The White House stated on Thursday that the Fed made a “cautious decision,” suggesting that the White House agreed with the extent of rate cut by the Fed.
On Thursday, Kevin Hassett, the chairman of the White House Council of Economic Advisers, said in an interview with CNBC that the 25 basis point rate cut by the Fed was a good first step towards significantly lowering rates. CNBC believes that Hassett’s remarks indicate the White House’s approval of the decision to cut rates by a quarter of a percentage point.
Hassett went on to say that evaluating economic variables and deciding on gradual rate cuts is a prudent measure. He has been included in the list of nominees for the next Federal Reserve Chairman nominated by President Trump.
He added that the Trump administration and the newly appointed Fed governor Stephen Miran have been advocating for larger rate cuts. Miran, currently serving as the chairman of the Economic Advisers Council, proposed a rate cut of half a percentage point (50 basis points), but was voted down in an 11-1 decision by the Federal Open Market Committee (FOMC).
The Fed lowered the interest rate by 25 basis points from the current target range of 4.25% to 4.5%. On Wednesday, 11 out of the 12 Fed officials with voting rights supported the rate cut, with one member hoping for a 50 basis point cut.
Hassett did not criticize the committee’s decision on Thursday.
“The bottom line is to move slowly and steadily towards the target, observe the data, that’s prudent policy,” he said on CNBC’s “Squawk Box” show. “I know my colleague Stephen wanted a 50-point cut, but I think 25 points is a fairly common consensus, I think it’s a good first step towards a significant rate reduction.”
For a while, Trump has criticized the Fed for not cutting rates sooner, and has urged for swift and aggressive rate cuts. The President had suggested cutting the federal funds rate by 3 percentage points.
Hassett stated that the strong economic growth in the third quarter usually would not warrant a rate cut, especially when the inflation rate is above the Fed’s target of 2%.
“I believe the more cautious approach for the Fed is to review all models, listen to diverse opinions, and decide ‘how do we deal with what seems to be a truly taking off economy in the case of inflation slowing down but still above target?'” he said. “They took a ‘middle of the road’ approach in this decision, which I think could be a very cautious decision.”
On Wednesday, Fed Chair Powell said at the end of the post-meeting press conference that the Fed is working to balance its goals in the face of unusual circumstances. Prior to that, he had described the 25 basis point rate cut by the Fed as a “risk management cut.”
CNBC reported on Wednesday that while the Fed cut rates, the dot plot released after the meeting – predicting the outlook for the remainder of 2025 – is crucial to the market as political factors influence market prospects. The dot plot shows that the Fed is expected to cut rates two more times before the end of the year.
US Treasury Secretary Bensette encouraged the Fed to be “bold” in cutting rates in an interview with CNBC on Tuesday.
“President Trump is very smart in economic governance, I think he’s almost right every time (criticizing the Fed),” the Treasury Secretary said. “The problem is, the Fed has always been behind the curve. We hope they can start catching up in a bold way.”