U.S. Treasury Secretary Scott Bessent indicated that parts of the U.S. economy, especially the housing sector, may already be experiencing a recession due to elevated interest rates. Speaking on CNN’s “State of the Union” on October 1, 2023, Bessent reiterated his call for the Federal Reserve to expedite interest rate cuts to stimulate economic activity.
Bessent acknowledged the overall strength of the U.S. economy but noted that high mortgage rates are significantly impacting the real estate market. He stated, “I think that we are in good shape, but I think that there are sectors of the economy that are in recession.” According to him, the current housing slowdown predominantly affects lower-income consumers who are burdened with debts rather than assets.
Data from the National Association of Realtors revealed that pending home sales in the United States remained unchanged in September 2023, highlighting the stagnation within the housing market. Bessent described the economic landscape as undergoing a transition, suggesting that adjustments are necessary to support growth.
The Federal Reserve Chair Jerome Powell indicated last week that there may not be additional rate cuts during the upcoming December meeting. This stance drew sharp criticism from Bessent and other officials from the Trump Administration. Stephen Miran, a Federal Reserve Governor currently on leave from his role as chairman of the White House Council of Economic Advisers, expressed concerns in a recent interview with the New York Times. He cautioned that the Fed risks inducing a recession if it fails to lower interest rates promptly.
Miran, who is expected to return to his White House position in January 2024, was one of two governors who dissented from the recent decision to reduce rates by 25 basis points. He argued for a more substantial cut of 50 basis points. He stated, “If you keep policy this tight for a long period of time, then you run the risk that monetary policy itself is inducing a recession.” Miran added that he sees no reason to take such risks if inflation is not a pressing concern.
Bessent shared Miran’s perspective, emphasizing that fiscal measures taken by the Trump administration have successfully lowered the deficit-to-gross-domestic-product ratio from 6.4% to 5.9%. This improvement, he argued, should contribute to lowering inflation rates. He further suggested that the Federal Reserve should continue to decrease interest rates as a means to foster economic recovery.
“If we are contracting spending, then I would think inflation would be dropping. If inflation is dropping, then the Fed should be cutting rates,” Bessent concluded, reinforcing the need for timely monetary policy adjustments to avert further economic distress.
As the U.S. navigates these complex economic challenges, the focus remains on how policymakers will respond to the housing sector’s struggles and broader economic indicators in the coming months.
