Treasury Secretary Scott Bessent on Tuesday said the Federal Reserve needs to cut interest rates, but understands if the central bankers "want to wait for some clarity" given the Iran war. He also thinks the Fed should wait for a new chairman to lead the next cycle.
Bessent touched on the Fed at two Washington talks, WSJ Opinion Live and an event at the Institute of International Finance.
The Treasury chief also spoke about the global economy, saying the International Monetary Fund "probably overreacted" in its downgrade of its global economic growth target for this year because of the Middle East conflict. The IMF warned of growth slowing to just 2%, amounting to a worldwide downturn, if the fighting drags on. Bessent said he thinks U.S. economic growth could still hit 3%-3.5% this year.
"I wonder what the hit would be to global GDP if a nuclear weapon hit London," Bessent told reporters. "I think a small bit of economic pain for a few weeks is worth the taking off the incalculable tail risk of...a nuclear Iran."
Bessent noted that other countries have taken different tacts in responding to economic fallout from the war. The European Union, for example, wants to ease rules that would allow more public spending for sectors hit by the surge in oil prices, such as agriculture, Reuters reported. Many Asian countries have turned to subsidies to cushion the energy price hit, too. Subsidies, he warned, could lead to more persistent inflation.
Bessent also addressed China on Tuesday. He said the message for next month's summit between President Donald Trump and Chinese leader Xi Jinping would be stability, noting his six or seven meetings with his counterpart over the past year.
"We have great stability in the relationship now," he said at the WSJ Opinion event. But there is still "room for improvement."
The secretary described China as an "unreliable global partner" at times in the past five years, such as when it hoarded healthcare products during the Covid-19 pandemic, when it imposed export controls on rare earth metals during the tariffs dust-up last fall, and again today as it builds up its strategic petroleum reserve.
"They have been hoarding and they have cut off exports of many products, " Bessent said.
Bessent also said it is clear that China is trying to displace the U.S. dollar as the world's reserve currency. Iran has accepted the yuan, China's currency, for the tolls it has charged ships transiting the Strait of Hormuz during the war.
If any shippers pay the tolls charged by Iran, Bessent said that puts them in violation of U.S. sanctions. "And that never ends well," he added.
Bessent didn't directly address whether he had spoken with the Chinese since the U.S. blockade of the strait began this week but said China's ships won't be allowed through.
"They can get oil, not Iranian oil. They were buying 90% of Iranian oil and that constitutes about 8% of their annual oil."
Speaking at the WSJ Opinion event, Bessent suggested China might be interested in buying U.S. gas now that its normal supply is being squeezed.
