Analysis: The Treasury Secretary's view on interest rate cuts contradicts the Fed's model.

On August 20, Deutsche Bank interest rate strategists stated that U.S. Treasury Secretary Basant's view that the Fed's interest rates are more than one percentage point above the appropriate levels indicated by models is incorrect. Basant had previously stated that "any model" suggests interest rates "should be 150 to 175 basis points lower." However, the search for models that support this claim has consistently yielded no results, and a team of Deutsche Bank strategists led by Matthew Raskin has recently joined this verification effort. Raskin, a former Fed economist and advisor, and his team stated in a report on Tuesday that the rules used by the Fed in its semi-annual monetary policy report "do not clearly point to a need for rate cuts, let alone cuts of 150 to 175 basis points." They noted that "it should be pointed out that the current federal funds rate is exactly within the relatively narrow range prescribed by the rules," which is roughly between 4% and 4.65%, indicating that a 25 basis point rate cut "may be reasonable." (Jin10)