Scott Bessent claims Fed rate hike may not be a mistake

Treasury Secretary Scott Bessent told CNBC on Wednesday that another round of Federal Reserve rate hikes would not automatically be a policy mistake, even as the central bank left borrowing costs unchanged at its October meeting. The comment came minutes after the Fed’s decision, which matched the market’s expectation of a pause after a modest increase the month before.

The Fed’s hold follows its first rate rise in three years, a move that many analysts saw as a test of how long higher rates would stay in place. President Donald Trump has repeatedly pressed for lower rates, and his former Treasury chief, Bessent, is a close confidant. Despite Trump’s public criticism of former chair Jerome Powell, Bessent said both he and the president believe current Chair Kevin Warsh is “off to a great start” and can balance full employment with price stability. The Fed’s decision also reflects lingering uncertainty about inflation, which remains above the 2 percent target as energy prices rise amid the war in Iran.

Bessent added that the Fed should keep an “open mind” about the energy supply shock, noting that the conflict has cut global crude output and pushed inflation higher. He praised the U.S. sanctions campaign, dubbed Operation Economic Outcast, saying internal estimates show Iran’s economy could shrink up to 25 percent within a year. When asked about the surge in bond yields tied to artificial‑intelligence‑related debt, Bessent said the Treasury monitors the market but sees no cause for alarm. He pointed to “neocloud” firms—specialized AI cloud providers that have struggled recently—arguing they are a small part of the broader ecosystem and financing continues to flow. Bessent also said he expects the third‑quarter GDP report due Thursday to be strong, though he has not yet seen the data.

The Treasury’s upbeat tone may influence the Fed’s next meeting in December, where many traders still anticipate a rate hike. If the Fed does raise rates, markets could see renewed pressure on borrowing costs and equity valuations, especially in sectors sensitive to financing conditions like AI infrastructure. Conversely, a pause would reinforce the view that the central bank is willing to let inflation ease on its own. All eyes will be on the upcoming GDP figures, which could shape the policy debate and signal whether the Fed will stay the course or resume tightening.