Treasury Chief: Fed Rate Pause May Not Last Long

Households and businesses facing borrowing costs should expect the current pause in interest rates to be temporary. Treasury Secretary Scott Bessent told CNBC on Wednesday that further increases from the Federal Reserve would not necessarily represent a mistake. He made the comment during an interview with Brian Sullivan, who asked if future hikes would signal a monetary policy error. Bessent replied, “That’s not necessarily so.”

The remarks came shortly after the Federal Reserve announced it would leave rates unchanged at its October meeting. Markets widely anticipated this decision, which followed a rate increase in September. That September hike marked the first time in three years that the central bank raised borrowing costs. Traders in fed funds futures largely expect the Fed to resume hiking when it meets again in December.

Bessent, a close confidant of President Donald Trump, addressed the tension between the White House and the Fed. Trump has repeatedly urged the Fed to lower rates and pressed former Chairman Jerome Powell on the matter during his final months in the role. However, Bessent said both he and the president believe current Fed Chairman Kevin Warsh is performing well. “I think Chair Warsh is off to a great start,” Bessent said, adding that he has “great confidence in him.”

The Treasury secretary also suggested the Fed should keep an “open mind” regarding the “transitory nature” of the current 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. On the conflict itself, Bessent stated that American efforts to isolate Iran’s economy, known as Operation Economic Outcast, have been “very successful.” He cited internal estimates indicating Iran’s economy could shrink by as much as 25% over the next year.

Bessent also addressed concerns about debt tied to artificial intelligence. He said officials “monitor” the situation but that it need not cause alarm. He specifically noted neoclouds, which are companies providing cloud infrastructure for AI that 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 took a more measured view, stating, “I don’t think it’s problematic at all. 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.”

Regarding the broader economic outlook, Bessent said he expects third-quarter GDP data to be “strong.” The data is scheduled for release on Thursday. He added a caveat, noting, “I haven’t seen it yet.”