Bessent: Another Fed Hike Would Not Be a Mistake

Treasury Secretary Scott Bessent stated on Wednesday that the Federal Reserve raising interest rates again would not necessarily constitute a policy error. He made the remark after CNBC's Brian Sullivan asked if future rate increases would be a mistake. Bessent replied, "That is not necessarily so."

The comments followed the Federal Reserve's announcement earlier in the day that it would keep interest rates unchanged at its October meeting. This outcome matched broad market expectations. Bessent is a close advisor to President Donald Trump, who has consistently advocated for lower borrowing costs. Trump previously pressured Jerome Powell, the predecessor to current Federal Reserve Chair Kevin Warsh, regarding interest rates during Powell's final months in office.

Bessent indicated that both he and Trump believe Warsh is performing effectively. He said he has great confidence in Warsh's ability to balance full employment with 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 decision to hold rates steady came one month after the Fed increased borrowing costs for the first time in three years. Traders in the fed funds futures market widely expect the central bank to resume rate hikes when it convenes again in December. Bessent said he wants the Fed to keep an open mind about the temporary nature of the supply shock from energy prices. The ongoing U.S. war with Iran has caused a sharp decline in global crude production, pushing annual inflation readings further away from the Fed's 2 percent target.

Bessent described U.S. efforts to isolate the Iranian economy, known as Operation Economic Outcast, as very successful. He cited internal estimates suggesting Iran's economy could shrink by as much as 25 percent within a year. Regarding bond yields on artificial intelligence related debt, Bessent said the Treasury monitors the situation but does not need to worry. He noted that neoclouds, which provide specific cloud infrastructure for AI, have struggled recently. Tesla CEO Elon Musk warned on Sunday that more than 200 neocloud firms face severe consolidation and failure.

Bessent argued that the neocloud sector is a small part of the overall ecosystem and that financing and deals are still occurring. He told CNBC he expects the third quarter GDP data, scheduled for release Thursday, to be strong, while clarifying that he had not yet seen the final numbers.

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