Former US Treasury Secretary and founder of Liberty Strategic Capital Steven Mnuchin made important assessments regarding the FED's monetary policy direction in a program he attended on CNBC.
Mnuchin said he expects the Fed to cut interest rates by a total of 75 to 100 basis points over the next 12 months.
Stating that FED Chairman Jerome Powell is taking a “wait-and-see” approach, Mnuchin said that the market has already priced in this reduction and expects the decrease in interest rates to be gradual. “I think we will see a decrease in interest rates of about 100 basis points, unless there are any surprise developments,” said Mnuchin, adding that Powell's cautious approach stems from the permanent effects of inflation, which has been described as “temporary” in the past.
Mnuchin said he expects Trump to announce several trade deals soon and that if progress is made in the talks, some of the tariff decisions in July could be postponed. “The tariffs that have been implemented so far have not increased inflation. This supports the market’s expectation of low interest rates,” Mnuchin said, adding that negotiations with countries such as China, India and Japan are ongoing.
Mnuchin, who also touched on TikTok in his speech, said that he expected the President to reach an agreement regarding the platform, and that instead of a direct sale, a solution that would involve new investors becoming partners in the company and continuing relations with ByteDance was more likely. He said that his own investment interests were currently inactive.
Stating that long-term interest rates are also pricing in future FED cuts, Mnuchin said that 10-year bond yields could fall to the 4% – 4.25% range, but it is unlikely to fall below 4%. The former minister said he did not expect a serious slowdown in the economy, noting that the market was acting with this outlook.
Mnuchin emphasized the importance of the “big tax package” expected to pass the Senate, arguing that extending the Trump-era tax cuts was critical for the market. Mnuchin, who acknowledged that long-term debt and deficits were a serious issue, said that deficits could be brought under control if economic growth remained around 3%, otherwise cuts in public spending would be inevitable.
*This is not investment advice.
