Treasury Secretary counselor says Fed rate cut is needed for the economy as worries continue about tariffs
The health of the US economy looks strong on paper, but Treasury counselor Joseph LaVorgna warns that high interest rates could become a headwind if the Fed does not act.
“If monetary policy, by the Fed’s own admission, is working to restrict economic activity … interest rates cannot be a headwind to growth because we won’t meet our full potential in the labor market,” LaVorgna said on Yahoo Finance’s Opening Bid.
“The US economy does need some help on the interest rate side because the 3%-plus growth is great right now, but we’re not going to sustain that.”
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
LaVorgna, who serves as counselor to Treasury Secretary Scott Bessent, was the chief economist for the National Economic Council in the first Trump administration. He emphasized that, while gross domestic product and investment spending are strong, the labor market remains fragile.
Second quarter GDP came in at an annualized rate of 3.8%, but the US added only 22,000 new jobs in August.
President Trump has called for rate cuts while criticizing the Federal Reserve’s more conservative stance. The central bank reduced interest rates at its September meeting for the first time in 2025.
LaVorgna noted that multiple downward revisions to previous employment data showed the economy under the Biden administration was weaker than initially reported. He pointed to Trump’s “One Big Beautiful Bill Act” as a potential driver of a rebound, citing a “big surge” in capital expenditures and investment spending.
According to the Atlanta Fed’s GDP tracker, growth is projected near 3.9% for the third quarter, indicating the economy is currently strong despite softer job gains. LaVorgna said he sees potential for broad-based job growth across industries like financial services, manufacturing, construction, retail, and transportation as the economy accelerates.
Trump’s tariffs remain a point of concern for many policymakers. LaVorgna acknowledged that while some Fed officials have hesitated to cut rates due to fears of tariff-driven inflation, the expected effect has so far been muted.
“The fact that we’re still looking for [tariffs] in the numbers suggests that even if it shows up at some point, the effect is going to be relatively de minimis,” he said.
LaVorgna suggested that rate cuts could help maintain economic momentum. Historically, initial Fed cuts often lead to further reductions, which could support interest-sensitive areas like housing and consumer spending, he added.
“We expect them to cut again because they basically made that commitment,” LaVorgna said, referring to the Fed’s September meeting.
Francisco Velasquez is a Reporter at Yahoo Finance. He can be reached on LinkedIn and X, or via email at francisco.velasquez@yahooinc.com.
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