Bessent: Potential Fed Hike Is Not an Error

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

The remarks followed a decision by the Federal Reserve to leave rates unchanged at its October meeting. Markets had broadly expected this pause. It came after the central bank raised borrowing costs in September. That move marked the first increase in three years. Traders in fed funds futures currently expect the Fed to resume hiking when it convenes in December.

Bessent, a close confidant of President Donald Trump, noted that both he and the president view current Fed Chairman Kevin Warsh favorably. Trump had previously pressed former Chair Jerome Powell to lower rates. Bessent said he has great confidence in Warsh. He added, "I think Chair Warsh is off to a great start." Bessent believes Warsh can balance full employment with stable prices.

The Treasury secretary urged the Fed to maintain an open mind regarding the transitory nature of the current energy price shock. The U.S. war with Iran has sharply reduced global crude oil production. This reduction has pushed annual inflation readings further above the Fed's 2% target.

Bessent also discussed Operation Economic Outcast, the U.S. effort to isolate Iran's economy. He described the campaign as very successful. Internal estimates suggest the Iranian economy could shrink by as much as 25% over the coming year.

Regarding debt tied to artificial intelligence, Bessent said officials monitor the situation but see no cause for alarm. He specifically addressed neoclouds, companies providing cloud infrastructure for AI that have struggled recently. Tesla CEO Elon Musk warned on Sunday that more than 200 neocloud firms face guppy-level death and consolidation. Bessent took a more measured view. He stated, "I don't think it's problematic at all." He noted that neoclouds are a small component of the overall ecosystem and that financing and deals are still occurring.

Looking ahead to economic data, Bessent expects third-quarter GDP figures to be strong. The data is due for release on Thursday. He added a caveat, noting, "I haven't seen it yet."