Deutsche Bank interest-rate strategists have challenged Treasury Secretary Scott Bessent’s assertion that the Federal Reserve’s interest rate is more than one percentage point above model-indicated levels. Bessent stated on August 13 that models suggest the Fed’s policy rate should be significantly lower, around 150 to 175 basis points. However, Deutsche Bank strategists, led by Matthew Raskin, argue that their search for applicable models has been unsuccessful.
Raskin, a former Fed economist and advisor, and his team noted in a report on Tuesday that the rules outlined in the Fed’s semiannual monetary policy report do not clearly support a rate cut of that magnitude. They emphasised that the current funds rate aligns with the relatively narrow range of rule prescriptions, spanning approximately 4 per cent to 4.65 per cent. This suggests that only a quarter-point rate cut may be justified. Deutsche Bank is a global financial services company providing commercial and investment banking, retail banking, transaction banking and asset and wealth management.
Since December, the Fed’s target range for the federal funds rate has been 4.25 per cent to 4.5 per cent, following a percentage point of reductions. Despite historical instances of policymakers cutting rates earlier than indicated by the rules during periods of labour market downside risks, they have resisted persistent pressure from President Donald Trump’s administration for further rate cuts.
The Treasury Department has yet to respond to requests for comments on the Deutsche Bank report.
