U.S. Treasury Secretary Scott Bessent on Wednesday addressed market concerns over several core risk points in a concentrated manner, delivering a clear signal to investors shortly after the Federal Reserve announced it would hold rates steady: the main pressure points in the current U.S. economy and financial system are all within controllable range.
According to reports from CNBC and Bloomberg on October 28, regarding AI financing risks, Bessent explicitly stated he "completely does not think this is a problem," noting that neoclouds account for only a limited portion of the overall AI ecosystem, and that financing and deals are still progressing. On Fed policy, he unusually stated that if the Fed were to raise rates again in the future, it "would not necessarily be a policy mistake," while reiterating his high trust in Fed Chairman Kevin Warsh. On Treasury yields, he partly attributed the currently elevated 10-year Treasury yield to the Fed's rate cut decision before the 2024 election, and hinted that as the Iran conflict subsides and energy prices fall, inflationary pressure is expected to ease and borrowing costs will decline accordingly.
These remarks came against the backdrop of market concerns over an AI debt bubble, persistently high Treasury yields, and highly uncertain Fed policy paths. Bessent's concentrated remarks were interpreted by the market as a targeted exercise in "expectation management."
AI Financing Risks: Treasury Is Watching, But Not Worried
Recently, yields on some AI-related bonds have climbed to double digits, and market concerns about an AI infrastructure financing bubble continue to heat up. AI computing power provider CoreWeave has become the focal point for outsiders scrutinizing the resilience of this boom cycle, with persistent doubts surrounding the sustainability of hundreds of billions of dollars in borrowing.
In response, Bessent said in a CNBC interview that the Treasury is closely monitoring the relevant financing conditions, but he clearly downplayed market concerns. "We monitor all of these situations, but I completely do not think this is a problem," he said, "because what we see is that neocloud companies are just a small component of the overall ecosystem."
Bessent also noted that financing and deals are still being completed, and specifically mentioned that Meta chose to raise funds through equity, which he viewed as evidence of the market's self-regulating capacity.
It is worth noting that Tesla CEO Musk previously warned on Sunday that more than 200 neocloud companies would face "death and consolidation at the small-fish level." Bessent's remarks stand in clear contrast to that pessimistic judgment.
Fed Policy: A Rate Hike Is Not Necessarily Wrong, Warsh Gets Double Endorsement
The Fed announced on Wednesday that it would hold rates steady, in line with broad market expectations. This decision came just one month after the Fed's first rate hike in three years (in September), and federal funds futures traders widely expect the Fed to resume rate hikes at its December meeting.
Against this backdrop, when asked whether a future rate hike would constitute a monetary policy mistake, Bessent gave an intriguing answer: "Not necessarily." He cited strong economic growth as support and reiterated his hope that the Fed would remain "open-minded" about the "transitory" nature of energy price supply shocks.
This position creates some tension with Trump's long-standing calls for rate cuts. Trump had previously continued to pressure former Fed Chairman Jerome Powell to lower rates. However, Bessent made clear that both he and Trump believe Warsh is performing excellently and can strike a balance between full employment and price stability. "I think Chairman Warsh has had a good start, and I have full confidence in him," he said.
Treasury Yields: Pre-2024 Election Rate Cuts "Planted Hidden Dangers," Energy Is the Key Variable
Although the U.S. 10-year Treasury yield has retreated somewhat in recent weeks from a more than two-decade high, it remains above 5%. Bessent directly linked this situation to the Fed's rate cut decision before the 2024 election, hinting that the rate-cutting operation starting with 50 basis points at that time had a profound impact on long-end rate trends.
"The 10-year yield never looked back after that," he said. "I have always maintained great respect for the bond market, and as Chairman Warsh said in the July decision, the bond market has already done a lot of the tightening work for us."
On the outlook for inflation and borrowing costs, Bessent identified energy prices as the core variable. He said the conflict between the United States and Iran caused a sharp decline in global crude oil production, pushing inflation further away from the Fed's 2% target. But he also stressed that once the United States "gets to the other side of the Iran conflict," the oil market will restore ample supply, which will help ease inflation and push down borrowing costs.
He also revealed that the U.S. isolation campaign against Iran's economy, codenamed "Operation Economic Outcast," has achieved "very remarkable results," with internal estimates showing Iran's economy could shrink by as much as 25% within a year.
In addition, Bessent said he expects U.S. third-quarter GDP data to be released Thursday to be "strong," but added, "I haven't seen the specific numbers yet." This remark provided macro-level support for his overall optimistic tone and further reinforced the core message he delivered to the market in this interview: the fundamentals of the U.S. economy are solid, and all current risks are within controllable range.
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