Treasury Chief Sees No Error in Potential Fed Rate Hikes

Treasury Secretary Scott Bessent stated on Wednesday that additional interest rate increases by the Federal Reserve would not necessarily constitute a monetary policy error. He offered the assessment during an interview with CNBC's Brian Sullivan, who asked if future hikes would represent a mistake. Bessent replied, "That's not necessarily so."

The remarks followed the Federal Reserve's announcement hours earlier that it would keep borrowing costs unchanged at its October meeting. The pause came after the central bank raised rates in September, marking the first increase in three years. Traders in fed funds futures currently expect the Fed to resume hiking at its next meeting in December.

Bessent, a close ally of President Donald Trump, noted that both he and the president believe current Fed Chairman Kevin Warsh is performing well. Trump had previously pressured Warsh's predecessor, Jerome Powell, to lower rates. Bessent said, "I think Chair Warsh is off to a great start," and added that he has "great confidence in him." The Treasury Secretary stated that Warsh can balance the goals of full employment and stable prices.

Bessent urged the Fed to maintain an "open mind" regarding the "transitory nature" of the current energy price shock. The ongoing war with Iran has reduced global crude production, pushing annual inflation readings further above the Fed's 2 percent target.

On the economic front, Bessent said he expects the third-quarter GDP data, scheduled for release Thursday, to be "strong," though he noted he had not yet seen the figures. He also addressed the impact of the U.S. war with Iran on the global economy. He declared that Operation Economic Outcast, the campaign to isolate Iran, has been "very successful." Internal estimates indicate Iran's economy could shrink by as much as 25 percent over the next year.

The Treasury Secretary also weighed in on bond yields for debt tied to artificial intelligence. He said officials monitor the situation but do not need to cause alarm, specifically citing neoclouds, or companies providing cloud infrastructure for AI. Tesla CEO Elon Musk warned on Sunday that more than 200 neocloud firms "are going to see guppy-level death and consolidation." Bessent countered, "I don't think it's problematic at all." He added that neoclouds are a small component of the ecosystem and that financing and deals continue to be executed.