Bessent says Fed should keep open stance on rates, cites AI productivity boost

Treasury Secretary Bessent's remarks are better interpreted as his personal push for a more accommodative Fed policy stance than as an indication that a rate change is coming soon. Still, the way he frames the argument influences rate expectations, given his direct connection to a Fed chair whom the administration chose. By explicitly citing the Greenspan-era precedent of the late 1990s, when the central bank allowed growth to run faster because of productivity improvements, the administration signals it wants markets to expect the Fed to overlook near-term inflation readings as long as AI-driven productivity gains can be credited with offsetting them. That narrative sits alongside a real near-term inflation challenge: fuel costs linked to the Iran conflict remain high and are already reflected in core CPI and bond yields, and Bessent's own remarks acknowledge that these costs are affecting voters. His comments about Iranian oil deliveries to China potentially stopping within two weeks are also significant for oil markets, because further restrictions on Iran's export channels would increase upward price risk precisely when the broader Strait of Hormuz standoff remains unresolved.

Bessent is calling on the Fed to handle the current AI expansion the same way Greenspan handled the internet boom of the 1990s, permitting faster growth despite persistent fuel-cost pass-through into inflation figures.

Summary:

• Bloomberg (behind a paywall) reports Treasury Secretary Scott Bessent said Federal Reserve policymakers should keep an "open mind" on interest rates, citing productivity gains from artificial intelligence and deregulation as forces that will help keep US inflation contained.
• Speaking on Fox News, Bessent said the US economy is thriving under President Trump, helped by tax cuts and deregulation, even as elevated fuel prices tied to the Iran conflict weigh on voters ahead of November's midterm elections.
• Bessent said Fed Chairman Kevin Warsh, appointed by Trump, is well aware the US economy is seeing gains similar to, or more substantial than, those during Alan Greenspan's tenure through the 1990s internet boom, when Greenspan "let things run."
• US core consumer prices rose 0.3% in August and 2.4% annually, according to data released on 11 September; days later, the Fed under Warsh raised its benchmark rate for the first time since 2023.
• Bessent said core inflation has been "quiescent" and has actually eased over the past few months.
• Asked about China's role in the Iran conflict, Bessent said China has substantially reduced assistance to Iran and expects Iran's remaining oil deliveries to China, roughly 15 million barrels still at sea, to be completed within about two weeks.

According to Bloomberg, Treasury Secretary Scott Bessent has called on Federal Reserve policymakers to maintain an "open mind" on interest rates, contending that productivity gains from AI and deregulation will help keep US inflation in check despite fuel costs from the Iran conflict affecting households.

On Fox News' Sunday Morning Futures, Bessent depicted the US economy as flourishing under President Trump, attributing the strength to tax cuts and deregulation, despite high diesel and gasoline prices resulting from the Iran war and Ukrainian strikes on Russian energy infrastructure that are burdening voters before the November midterm elections. He stated that Fed Chairman Kevin Warsh, chosen by Trump to head the central bank, is clearly aware that the current economic gains rival or exceed those from Alan Greenspan's era during the 1990s internet boom. According to Bessent, Greenspan "let things run," and he urged the Fed's board and voting members to take a similarly open-minded approach because of the deregulatory environment.

These remarks come amid an active inflation discussion. Diesel and gasoline prices, which have been elevated for much of this year due to the Iran war and Ukrainian attacks on Russia's energy sector, have driven up bond yields worldwide and directly influenced US price data. Core consumer prices, excluding food and energy, increased by 0.3% in August and 2.4% annually, per government data issued on 11 September. A few days later, the Fed, led by Warsh, increased its benchmark rate for the first time since 2023. Bessent, however, described underlying inflation more positively, stating that core inflation has been "quiescent" and has actually decreased over the last several months, a perspective that bolsters his argument for the Fed to allow faster growth.

Bessent was also questioned about China's part in the Iran conflict and replied that Beijing has significantly cut any aid to Tehran. He estimated that only about 15 million barrels of Iranian oil remain on the water headed to China and that he expects Iran to complete its final delivery to Chinese purchasers in approximately two weeks, after which China will have no more access to Iranian crude. This situation, Bessent indicated, increases the pressure already on Iran to negotiate a deal to reopen the Strait of Hormuz, linking the administration's domestic economic message to its wider Iran standoff strategy.