Bessent Expresses Confidence in Warsh, Expects Inflation to Ease as Iran Tensions De-escalate
N.R. Finch
Treasury Secretary Bessent publicly endorsed new Fed Chair Warsh's independence and predicted oil-driven inflation would retreat once the Iran conflict subsides — but this week's PCE print is expected to show inflation still running more than double the Fed's target, putting that narrative to the test.
Why is Bessent backing Warsh right now?
The Trump administration has openly pressured the Fed to cut rates, yet Warsh's first FOMC meeting held rates steady — directly contradicting the president's wishes.
Speaking at the Economic Club of New York, Bessent said he is "confident the Fed chair will find the optimal path," citing Trump's own remarks at Warsh's swearing-in that the chair would remain independent.
This means → the Treasury Secretary is giving the president an off-ramp: the rate-cut push failed, so the message pivots to "we respect central-bank independence."
What is the logic behind his inflation call?
Bessent anchored his case on energy prices: as U.S.–Iran negotiations advance and the conflict winds down, oil prices will fall, pulling inflation back to the 2% target.
He framed Iran's 60-day oil-sales waiver as part of the negotiation "arc" and called it "a broad positive for global markets."
In plain terms = his logic chain is: geopolitical de-escalation → lower oil → inflation falls on its own — the entire bet rests on diplomacy going smoothly.
Does the hard data support that view?
Thursday's PCE — the personal consumption expenditures price index, the Fed's preferred inflation gauge — is forecast to show a May year-on-year rise of 4.1%, more than double the 2% target.
Core PCE, which strips out food and energy, is expected at 3.4% year-on-year. This means → even if oil prices do drop, the remaining inflation pressure is sticky.
This reflects a clear gap between Bessent's "energy narrative" and the current numbers: energy is one component of inflation, not the whole story.
How does the Treasury Secretary view the weaker dollar?
Bessent deliberately played down the strong-dollar question, saying "strong dollar" does not refer to a specific level on the Bloomberg Dollar Index and noting the dollar has already weakened since the start of last year.
His exact words: "I don't wake up and think this is doing a lot for the economy — I just see it as a price on the screen."
In plain terms = the Treasury Secretary refuses to be pinned to any exchange-rate stance — neither "strong dollar good" nor "weak dollar good" — keeping maximum policy flexibility.
What is the key test for the second half of the year?
If U.S.–Iran talks succeed and oil prices fall as expected, Bessent's narrative holds and Warsh gains room to hold rates or even consider cuts.
If energy prices stay elevated and core inflation remains stubborn, several FOMC policymakers have already put a 2026 rate hike on the table — ratcheting up the pressure on Warsh.
Bessent himself offered a telling line: "The bond market has toppled more governments than howitzers." This means → he knows full well that the political cost of runaway inflation far outweighs any short-term boost from rate cuts.
Content is for reference only, not financial advice.