Former Treasury Secretary Lawrence Summers criticized the current U.S. Treasury Secretary Scott Bessent for weighing too directly on the direction of interest rates, something he believes could blur the lines between fiscal and monetary polices.

‘Not Sure It’s Helpful’ To Be Prescriptive

Summers, who served as the Treasury Secretary under President Bill Clinton, says that he is surprised to see Bessent “be that prescriptive on interest rates,” noting that usually administrative officials aren’t involved in such judgements, while adding that he’s “not sure it’s helpful for the Administration to be publicly prescribing on monetary policy.”

See Also: Fed Rate-Cut Chorus Grows Louder: Could This Be A Breakout Moment For Growth ETFs?

He says that any model of monetary policy must rest “on a judgment about what the neutral interest rate is,” which is the level that allows the economy to sustain full employment without fueling inflation.

He also cites “a judgment about inflation expectations” as another requisite for arriving at a monetary policy model, saying that this is how he would approach it.

Rising Demand For Capital

Summers also points to multiple forces that he believes are driving higher demand for capital, including “substantially elevated deficit spending,” a surge in “data center spending,” reduced U.S. trade deficits, and “higher asset prices” that limit the flow of savings.

Altogether, he says, these dynamics suggest that “neutral interest rates have risen quite substantially,” noting that under such circumstances Bessent's stance on steep rate reductions was misplaced.

In such a case, he notes, you shouldn’t be “prescribing [a] 175 basis point cut in rates unless we see a recession.”

“We Should Be 150-175 Points Lower”

Last week, Bessent argued that the current interest rates were too restrictive, saying that “we should be 150-175 basis points lower on the fed funds now,” noting that had the Bureau of Labor Statistics been more accurate recently, the Federal Reserve would have cut rates in June or July.

According to the CME Group’s FedWatch tool, the probabilities of a 25 basis point rate cut in September are at 84.6%, and 51.5% for another cut in October.

Leading banks such as JPMorgan and Goldman Sachs have since made the same call, expecting the Federal Reserve to cut interest rates in September.

Read More:

• Dissenting Fed Vice Chair Urges Rate Cuts As Jobs Data Weakens, Inflation Nears Target -- Still Sees ‘Three Cuts’ In 2025

Photo Courtesy: eamesBot on Shutterstock.com