Bessent Urges Fed to Keep an Open Mind on Rates, Citing AI Productivity and Deregulation Logic
nashnova research
Treasury Secretary Scott Bessent publicly urged the Fed to stay "open-minded" on rates, arguing AI-driven productivity gains and deregulation can sustain growth without stoking inflation — a pointed message delivered just after the Fed resumed hiking for the first time since 2023.
What is Bessent actually arguing?
His core claim: AI-driven productivity gains + deregulation can support growth without significantly raising inflation.
This means → he believes the supply side is improving, so the Fed has no reason to tighten aggressively.
He compared the current moment to the 1990s internet boom, when Greenspan chose to "let the economy run" rather than pre-emptively hike.
In plain terms = Bessent's subtext: the economy is getting stronger on the supply side — don't hit the brakes.
Does the inflation data back him up?
Bessent claimed "core inflation has been very flat and actually declining over the past few months."
August core CPI — consumer prices excluding food and energy — rose 0.3% month-on-month and 2.4% year-on-year. The numbers themselves are not alarming.
But he attributed this year's inflation pressures to the Iran war driving diesel and gasoline to record highs, plus Ukrainian strikes on Russian energy infrastructure — supply shocks, not demand overheating.
This reflects a deliberate framing: separate "core inflation is under control" from "energy-price spikes are external," building a logical runway for the Fed to ease off.
The Fed just hiked — why speak up now?
Key context: days after the data release, Warsh's Fed raised the benchmark rate for the first time since 2023.
This means → Bessent's remarks were not abstract. They were a direct response to a hike that had already happened — and the White House was not pleased.
He name-checked new Fed Chair Kevin Warsh, saying Warsh is "very aware" that current growth mirrors or exceeds the 1990s.
In plain terms = the Treasury Secretary went on national television to signal that the central-bank chief should know better than to hike right now. In American politics, that is unusually direct pressure.
What about Iranian oil and China's role?
Bessent disclosed that China has sharply reduced any assistance to Iran, with only about 15 million barrels of Iranian oil remaining at sea.
He expects "the last shipments to China to be completed within two weeks, after which there will be no oil left to deliver."
The backdrop: Trump asked Xi Jinping to stop aiding Iran, and Washington is steadily tightening economic pressure on Tehran.
This means → if Iranian oil is truly cut off, global crude prices could face upward pressure in the short term. But Bessent's narrative frames this as proof that energy inflation is an external shock — and therefore not a reason to hike.
What does this mean for markets?
Bessent's remarks are designed to give the Fed political cover to maintain a relatively accommodative stance.
But the Fed has already begun a hiking cycle. Whether it adjusts course under White House pressure depends on incoming data — especially the trajectory of energy prices.
This reflects the core tension in U.S. macro policy right now: the White House sees AI and deregulation as supply-side tailwinds; the Fed sees energy shocks and inflation risk.
In plain terms = both sides are looking at the same data and reaching opposite conclusions. Who wins depends on where oil prices and inflation prints land over the next few months.
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