US Treasury Secretary Bessent on Tuesday backed the Federal Reserve’s decision to delay interest rate cuts, a notable reversal from his prior demands for immediate easing that gives the central bank political breathing room to assess war-driven inflation. The Fed has held its benchmark federal funds rate in a range of 5.25 to 5.50 percent since July 2023.
"I believe interest rates should be lower, but I understand if they want to wait for more clarity," Bessent said at the Semafor World Economic Summit in Washington. He added that it was "the right thing" for the Fed to observe the effects of the Iran conflict before acting.
The comments helped solidify market expectations for a prolonged pause from the central bank. While the source material notes that U.S. Treasury yields have begun to decline as oil prices ease, futures markets continue to price in a low probability of a rate cut in the near term.
Bessent’s endorsement marks a significant shift. As recently as January, he argued that rate cuts were the "only missing element" for stronger economic growth. Now, he cites the war in Iran, which has pushed up energy costs and lifted headline inflation. The overall Consumer Price Index rose 0.9 percent in March, driven by higher energy costs.
Inflation Seen as Transitory
Despite the headline jump, Bessent expressed confidence that underlying price pressures are contained, pointing to the modest 0.2 percent monthly increase in the March core CPI, which excludes food and energy. The core Producer Price Index rose an even smaller 0.1 percent.
"I have a high degree of confidence that core inflation will continue to come down," Bessent said, characterizing the current spike as a "transitory" shock from energy prices. "It's pretty contained and actually going down in many categories."
Economic Outlook and Fed Leadership
The Treasury Secretary acknowledged the war has impacted the current quarter's growth, walking back a previous forecast for 2026 growth to exceed 4 percent. "This quarter obviously needs some makeup," he said, but insisted "theoretically there will be a big snapback," citing strong economic momentum in January and February.
Bessent also commented on the pending nomination of Kevin Warsh to succeed Jerome Powell as Fed Chair. He noted the selection criteria was finding someone with "an open mind" and said he expects Warsh to conduct a deep review of the Fed's management structure.
This article is for informational purposes only and does not constitute investment advice.
