Bessent says further Fed rate hikes would not necessarily be an error

Treasury Secretary Scott Bessent declined to call further Federal Reserve rate hikes a policy error, a stance that matters for rate-sensitive positions ahead of the central bank’s next meeting. His remarks on energy-driven inflation, Iran and AI-related debt also bear on oil, credit and growth exposure.

• Bessent told CNBC that further Fed rate hikes would not necessarily be a monetary policy error.
• The Fed held rates in October, a month after its first hike in three years.
• Bessent expects strong third-quarter GDP data, though he said he has not yet seen it.

• 25% Maximum Iran economic contraction in a year, per Bessent’s internal estimates
• 2% Fed inflation target that annual readings are moving further from
• 200+ Neocloud firms Musk expects to consolidate, which Bessent calls a small component
• 3 years Time since the Fed’s previous rate hike before last month’s increase

Bessent said Wednesday (October 28) that more Fed rate hikes would not necessarily be a mistake, CNBC reported. The comments came hours after the central bank left rates unchanged at its October meeting, as the market widely expected. Two events now test his view: third-quarter GDP data due Thursday (October 29) and the Fed’s December meeting.

Bessent says further Fed rate hikes would not automatically be an error

CNBC’s Brian Sullivan asked Bessent whether future rate increases would constitute a monetary policy error.

That’s not necessarily so.

Scott Bessent, U.S. Treasury Secretary

The Fed’s decision to hold came a month after it lifted borrowing costs for the first time in three years. Fed funds futures traders widely expected the central bank to return to rate hiking when it meets again in December. Bessent said he would like the Fed to keep an “open mind” about the supply shock from energy prices having a “transitory nature.”

The U.S. war with Iran has led to a sharp drop in global crude production volumes. That has pushed annual inflation readings further from the Fed’s 2% target.

Bessent also said U.S. efforts to isolate the Iranian economy, dubbed Operation Economic Outcast, have been “very successful.” He said internal estimates show Iran’s economy could contract by as much as 25% in the span of a year. The reporting gives no baseline or methodology for that estimate, and the Iranian government’s position is not represented.

Bessent says he and Trump both back Warsh to balance jobs and prices

Bessent is a key confidant of President Donald Trump, who has repeatedly called for lower interest rates. Trump pressured Jerome Powell, the predecessor of current Fed Chairman Kevin Warsh, on the issue during Powell’s final months leading the central bank. Bessent said Wednesday that both he and Trump believe Warsh is doing well and can balance full employment against stable prices.

“I think Chair Warsh is off to a great start,” Bessent said. “As I often say, I have great confidence in him.”

Neither Warsh nor the Fed was quoted in the reporting, so the central bank’s own view on further hikes is not represented.

Bessent plays down neocloud stress and expects strong GDP on Thursday

Asked about bond yields on artificial-intelligence related debt, Bessent said “we monitor” it but that it did not need to cause concern. He singled out neoclouds, companies that provide specialized cloud infrastructure supporting AI and that have recently struggled in the market. Tesla CEO Elon Musk warned on Sunday (October 25) that more than 200 neocloud firms “are going to see guppy-level death and consolidation.”

Bessent offered a contrasting 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.”

On growth, Bessent told CNBC he expects the third-quarter GDP data to be “strong.” He added that “I haven’t seen it yet.”

The BlockWest read. We read Bessent as clearing political room for the Fed to hike again, which shifts the December decision onto data rather than White House pressure. For rate allocators, that raises the weight of the oil-driven inflation prints. For holders of AI credit, his focus on financing still closing places Treasury’s tolerance for neocloud losses well above the pain Musk describes.

The first test is the third-quarter GDP release on Thursday (October 29), which Bessent said he had not yet seen. The second is the Fed’s December meeting, where fed funds futures traders widely expect a return to rate hikes.

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