Bessent says Fed rate hikes would not be an error

Treasury Secretary Scott Bessent told CNBC on Wednesday that the Federal Reserve could raise interest rates again without making a policy mistake. He offered those remarks in an interview with Brian Sullivan. Sullivan asked if future increases would represent an error in monetary policy. Bessent answered, 'That's not necessarily so.'

The Fed announced earlier that day it would hold rates steady at its October meeting. Markets had widely expected that pause. The central bank had raised borrowing costs in September. That move marked the first rate increase in three years. Traders in fed funds futures currently expect the Fed to resume hiking at its December meeting.

Bessent is a close ally of President Donald Trump. Trump has repeatedly urged the Fed to cut rates. The president pressed former Chair Jerome Powell on that goal during Powell's final months in the role. Bessent said he and the president believe current Chair Kevin Warsh is performing well. He noted that Warsh can balance the goals of full employment and stable prices. 'I think Chair Warsh is off to a great start,' Bessent said. He added that he has 'great confidence in him.'

Bessent said the Fed should 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. That reduction has pushed annual inflation readings above the Fed's 2% target. On the war itself, Bessent said American efforts to isolate the Iranian economy, called 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.

The Treasury Secretary also addressed bond yields on debt tied to artificial intelligence. He said officials monitor the situation but that it need not cause alarm. He pointed to neoclouds, which are companies that provide cloud infrastructure for AI. These firms 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. He noted that neoclouds are a small component of the ecosystem and that financing and deals are still getting done.

Bessent said he expects third-quarter GDP data to be strong. That data is due Thursday. He added a caveat, noting that he has not seen the numbers yet.