Treasury Secretary Scott Bessent said Wednesday that further Federal Reserve rate hikes wouldn’t necessarily be a mistake.
After CNBC’s Brian Sullivan asked if rate increases in the future would constitute a monetary policy error, Bessent responded: “That’s not necessarily so.”
Bessent’s comments came hours after the Fed announced it would keep interest rates unchanged at its October gathering, as the market widely expected.
Bessent is a key confidant of President Donald Trump, who has repeatedly called for lower interest rates. Trump pressured Fed Chairman Kevin Warsh’s predeccesor, Jerome Powell, over the issue during Powell’s final months at the helm of the central bank.
But Bessent said Wednesday that both he and Trump believe Warsh is doing well and can strike a balance between ensuring full employment and stable prices.
“I think Chair Warsh is off to a great start,” Bessent said. “As I often say, I have great confidence in him.”
The Fed’s decision to hold rates steady came a month after it lifted borrowing costs for the first time in three years. Fed funds futures traders widely expected the central bank to return to rate hiking when it meets again in December.
Bessent said he would like to see the Fed have an “open mind” about the supply shock from energy prices having a “transitory nature.” The U.S. war with Iran has led to a sharp drop in global crude production volumes, in turn leading annual inflation readings to move further from the Fed’s target of 2%.
Bessent also said the U.S. efforts to isolate the Iran economy, dubbed Operation Economic Outcast, have been “very successful.” He said internal estimates show that Iran’s economy could contract by as much as 25% from March 2025 to March 2026.
When asked about bond yields on artificial-intelligence related debt, the Wall Street veteran said “we monitor” it, but that it didn’t need to cause concern.
Bessent specifically referenced neoclouds, a type of company providing specific cloud infrastructure supporting AI that have recently struggled in the market. Tesla CEO Elon Musk warned on Sunday that more than 200 neocloud firms “are going to see guppy-level death and consolidation.”
“I don’t think it’s problematic at all,” Bessent said. “The neoclouds are a small component of the overall ecosystem, and we’re still seeing the financing getting done. We’re still seeing the deals get done.”
Bessent told CNBC he expects the third-quarter GDP data expected Thursday to be “strong.” But he clarified that “I haven’t seen it yet.”
