Fed Policy: Treasury Chief Says Further Hikes Are Acceptable

Treasury Secretary Scott Bessent stated on Wednesday that further increases in federal interest rates would not constitute a monetary policy mistake. The remarks came during an interview with CNBC’s Brian Sullivan, who asked if future hikes would represent an error. Bessent replied, “That's not necessarily so.”

The Fed announced earlier that same day it would hold rates steady at its October meeting. This pause followed a rate increase in September, the first time in three years that the central bank raised borrowing costs. Traders in fed funds futures generally expect the Fed to resume hiking at its December meeting.

Bessent has a close relationship with President Donald Trump, who has repeatedly urged the Fed to lower rates. Trump pressured former Fed Chairman Jerome Powell to cut rates during Powell’s final months in the role. Current Fed Chairman Kevin Warsh replaced Powell. Bessent said both he and the president believe Warsh is performing well and can balance full employment with stable prices. “I think Chair Warsh is off to a great start,” Bessent said, adding that he has “great confidence in him.”

The Treasury secretary urged 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 above the Fed’s 2% target.

Bessent said American efforts to isolate the Iranian economy, known as Operation Economic Outcast, have been “very successful.” Internal estimates indicate Iran’s economy could shrink by as much as 25% over the course of a year.

On the topic of bond yields for debt tied to artificial intelligence, Bessent said officials “monitor” the situation but that it need not cause alarm. He specifically addressed neoclouds, companies that provide 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 took a more measured view. “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.” He expects third-quarter GDP data, due Thursday, to be “strong,” though he added the caveat that “I haven't seen it yet.”