US Treasury Secretary Scott Bessent said on Wednesday that additional interest rate increases by the Federal Reserve would not necessarily constitute a monetary policy error.
Although President Donald Trump has long called for lower interest rates, Bessent stressed that both he and Trump are satisfied with Fed Chair Kevin Warsh's performance and believe Warsh can strike a balance between full employment and price stability.
In a media interview, when asked whether further Fed rate hikes would amount to a monetary policy mistake, Bessent responded: "Not necessarily."
His remarks drew attention because Bessent is a key economic policy advisor to Trump, who had repeatedly and publicly demanded that the Fed cut rates and continued to pressure former Fed Chair Jerome Powell during the final months of his term.
Bessent did not oppose further rate increases this time, instead expressing support for Warsh's policy judgment.
He said: "I think Chairman Warsh has had an excellent start. As I often say, I have full confidence in him."
Bessent made these comments just hours after the Fed announced it would keep rates unchanged at its October monetary policy meeting, maintaining the federal funds rate target range at 3.75% to 4%, in line with widespread market expectations.
Previously, the Fed implemented its first rate hike in three years in September.
Despite choosing to pause this month, interest rate futures traders broadly expect the Fed to raise rates again in December.
Energy price shock may be temporary
Regarding the current inflation pressures facing the United States, Bessent said he hopes the Fed will evaluate the supply shock from rising energy prices with an open mind and consider that it may be temporary in nature.
Due to the war between the United States and Iran, global crude oil production has fallen sharply, energy prices have continued to rise, pushing US inflation further away from the Fed's long-term 2% target.
Bessent believes the Fed should fully consider the nature of the energy supply shock when formulating policy, rather than making judgments based solely on short-term price increases.
This view suggests that while Bessent does not believe further rate hikes are necessarily a policy mistake, he also wants the Fed to carefully assess whether rising energy prices will persistently push up overall inflation.
Meanwhile, Bessent also discussed the US government's economic pressure measures against Iran.
He said that US actions aimed at further isolating Iran's economy have achieved significant results.
According to internal US government estimates, Iran's economy could contract by as much as 25% within a year.
However, this figure is an internal US government projection, not an already realized level of economic contraction.
Downplaying AI debt financing risks, calling emerging cloud computing companies' problems not a major concern
Beyond monetary policy, Bessent also responded to market concerns about debt financing risks related to artificial intelligence (AI).
Recently, as technology companies continue to expand AI infrastructure investment, related bond issuance has grown rapidly, and some investors have begun to worry that rising financing costs and heavier corporate debt burdens could trigger broader credit risks.
In response, Bessent said the US Treasury is closely monitoring changes in AI-related bond yields but sees no reason for excessive concern at present.
He specifically mentioned emerging cloud computing companies whose market performance has recently come under pressure.
These companies mainly provide specialized cloud infrastructure supporting AI computing and typically require substantial capital investment in building data centers and purchasing high-performance chips.
As market doubts about AI investment returns and the sustainability of debt financing have intensified, some emerging cloud computing companies' stock prices and bonds have recently faced pressure.
Tesla (TSLA.US) CEO Elon Musk warned on Sunday that more than 200 emerging cloud computing companies could face large-scale elimination and industry consolidation in the future.
However, Bessent does not believe these companies' financing pressures pose a major threat to the overall financial system.
He said: "I don't think there's any problem at all. Emerging cloud computing companies are just a small part of the entire ecosystem, and we still see financing deals being completed and related transactions still moving forward."
Bessent's remarks indicate that despite the rapid expansion of AI infrastructure financing and market pressure on some companies, the US Treasury has not yet regarded related risks as systemic.
Expects strong US third-quarter GDP performance
When discussing the US economic outlook, Bessent also said he expects the third-quarter gross domestic product (GDP) data to be released on Thursday to show strong performance.
However, he specifically clarified that he has not seen the relevant data in advance.
Overall, Bessent's interview sent two important signals: on one hand, a key economic official in the Trump administration does not regard further Fed rate hikes as an inevitable policy mistake and has publicly expressed trust in Warsh; on the other hand, the Treasury believes current AI-related debt financing risks remain within controllable bounds.
As US inflation pressures remain elevated and economic growth stays resilient, the market will continue to watch whether the Fed resumes rate hikes in December and whether the Trump administration's attitude toward monetary policy shifts further.
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