U.S. Treasury Secretary Scott Bessent said Tuesday the United States should “wait and see” before cutting interest rates, signaling support for keeping borrowing costs elevated as inflation and growth remain firm. His comments reinforced market expectations that the Federal Reserve is likely to hold the federal funds rate in its current 5.25%–5.50% range for longer than previously thought.
Inflation expectations seen as contained
In an interview, Bessent said he was confident that recent price increases are not becoming embedded in longer-term inflation expectations. He pointed to steady economic momentum through January and February, describing the early-year performance as solid rather than overheating.
The stance aligns with the latest Consumer Price Index data, which showed headline inflation running at 3.5% year-on-year, still well above the Fed’s 2% target. Bessent’s message suggests that while inflation remains elevated, policymakers are not yet seeing signs of a destabilizing spiral in prices and wages.
Strong labor market underpins cautious approach
Bessent’s call for patience comes against the backdrop of a robust labor market. The economy added 303,000 jobs in the latest month, sharply beating forecasts and signaling that growth does not yet require support from lower rates.
This combination of firm employment and persistent, if moderating, inflation has reduced the urgency for policy easing. It also gives the Fed room to hold rates without immediate concern of tipping the economy into recession.
Rate-cut bets pulled back
Derivatives pricing shows traders have scaled back expectations for near-term easing. Interest rate futures now imply less than a 45% chance of a cut by the mid-year Fed meeting, a marked shift from earlier in the year when multiple reductions were widely expected.
The repricing reflects a “higher for longer” narrative taking hold as economic data repeatedly surprise to the upside and inflation proves slower to retreat toward target.
Dollar index steady, fx moves muted
Market reaction to Bessent’s remarks was limited. The U.S. Dollar Index hovered around 98.40, largely unchanged from the previous session, indicating that his comments were broadly in line with prevailing expectations.
Currency data showed only modest moves across major pairs:
- The dollar was softest against the Japanese yen, slipping 0.18%.
- It inched up 0.04% versus the Canadian dollar.
- It gained 0.16% against the Australian dollar.
- Moves versus European currencies were marginal, with the dollar down 0.01% against the British pound and flat against the euro.
- The Swiss franc was just 0.01% stronger against the dollar.
The narrow ranges highlight a generally stable foreign exchange backdrop, with no sign of a disorderly response to the policy outlook.
Implications for markets and risk appetite
Bessent’s comments, combined with the data, support a scenario in which the dollar remains underpinned by relatively high U.S. yields. Prolonged restrictive policy typically bolsters the appeal of dollar-denominated assets while weighing on demand for more risk-sensitive segments that favor low-rate, high-liquidity conditions.
For traders, the prospect of delayed easing keeps the focus on carry and yield differentials, rather than on an imminent pivot to easier policy.
Data in focus for timing of first cut
Attention now turns to the next rounds of inflation and employment releases. Another set of strong figures would likely reinforce the “wait and see” approach Bessent described, potentially pushing expectations for the first rate cut further into the year.
Conversely, a clear softening in prices or jobs growth could reopen the debate over when the Fed should begin lowering rates, and how quickly policy might move toward a more neutral setting.
Curious how macro policy shapes crypto? Explore how Fed rate cut speculation impacts the crypto market and adjust your strategy.
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