Bessent Says Another Fed Rate Hike Would Not Necessarily Be a Mistake

Treasury Secretary Scott Bessent said on Wednesday that additional interest rate increases from the Federal Reserve would not necessarily amount to a mistake. He made the remarks in an interview with CNBC's Brian Sullivan, who asked whether future hikes would represent a monetary policy error. "That's not necessarily so," Bessent replied.

The comments came only hours after the Fed announced it would leave interest rates unchanged at its October meeting, a decision markets had widely anticipated. The pause followed a rate increase a month earlier, the first time in three years that the central bank had raised borrowing costs. Traders in fed funds futures broadly expect the Fed to resume hiking when it meets again in December.

Bessent is a close confidant of President Donald Trump, who has repeatedly urged the Fed to lower rates. Trump pressed Jerome Powell, the predecessor of current Fed Chairman Kevin Warsh, on the matter during Powell's last months leading the central bank. Bessent said, however, that both he and the president believe Warsh is performing well and can balance the goals of full employment and stable prices. "I think Chair Warsh is off to a great start," he said, adding that he has "great confidence in him."

The Treasury secretary also said he would like the Fed to keep an "open mind" about the "transitory nature" of the energy price shock. The U.S. war with Iran has sharply reduced global crude production, pushing annual inflation readings further above the Fed's 2% target.

Turning to Iran, Bessent said American efforts to isolate its economy, known as Operation Economic Outcast, have been "very successful." He said internal estimates indicate Iran's economy could shrink by as much as 25% over the course of a year.

Asked about bond yields on debt tied to artificial intelligence, Bessent said officials "monitor" the situation but that it need not cause alarm. He pointed specifically to neoclouds, companies that provide cloud infrastructure for AI and 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."

Bessent was more measured. "I don't think it's problematic at all," he 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."

On the economic outlook, Bessent said he expects third-quarter GDP data, due Thursday, to be "strong." He added a caveat, noting that "I haven't seen it yet."