Deutsche Bank: Bescent's interest rate cut view contradicts the Federal Reserve model

Mr. Bescent, the US Treasury secretary, was wrong to suggest that Fed rates were more than a percentage point higher than models suggested would be desirable, according to Deutsche Bank interest rate strategists. Mr. Bescent had said that "whatever model" suggested rates "should be 150 to 175 basis points lower". But the search for models that fit this line has since been fruitless, and Deutsche Bank strategists led by Matthew Raskin recently joined the effort. Mr. Raskin, a former Fed economist and adviser, and his team said in a note on Tuesday that the rules used by the Fed in its semi-annual monetary policy report "do not explicitly point to a rate cut, let alone a 150 to 175 basis point cut". They said: "It is important to note that the federal funds rate is now well within the relatively narrow range set by the rules", roughly between 4 per cent and 4.65 per cent, suggesting that a 25 basis point cut "may be justified".