Treasury Secretary Bessent Concedes Fed May Hike Rates Again

Treasury Secretary Scott Bessent told CNBC on Wednesday that the Federal Reserve is not making a mistake if it raises interest rates in the future. The comments came hours after the central bank announced it would keep borrowing costs unchanged at its October meeting, a move that aligned with market expectations.

Bessent addressed a question from CNBC's Brian Sullivan regarding whether future rate increases would represent an error in monetary policy. The Treasury chief responded, "That's not necessarily so." His remarks mark a shift in tone from the administration's previous stance, which has heavily favored lower borrowing costs.

President Donald Trump, a key ally of Bessent, has repeatedly pressured the Fed to cut rates. During the final months of Jerome Powell's tenure as chairman, Trump frequently criticized the central bank's independence. However, Bessent said on Wednesday that both he and the president believe current Fed Chair Kevin Warsh is performing well. "I think Chair Warsh is off to a great start," Bessent stated. "As I often say, I have great confidence in him."

The Fed's decision to hold rates steady followed a one-month pause after the bank lifted borrowing costs for the first time in three years. Traders in the fed funds futures market widely expect the central bank to resume rate hikes at its December meeting. Bessent suggested the Fed should keep an "open mind" regarding the supply shock from energy prices. He argued that the impact of the U.S. war with Iran on global crude production and inflation, which has moved further from the 2% target, may have a "transitory nature."

The Treasury chief also commented on the economic isolation of Iran, a strategy dubbed Operation Economic Outcast. Bessent described the effort as "very successful," citing internal estimates that suggest Iran's economy could contract by as much as 25% within a year.

When asked about bond yields for artificial intelligence debt, Bessent said the Treasury monitors the sector but does not view it as a cause for concern. He specifically referenced neoclouds, which 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 countered that the sector is a small component of the ecosystem and that financing deals continue to close.

Bessent expects the third-quarter GDP data, scheduled for release Thursday, to be "strong." He clarified, however, that he has not yet seen the final figures.