Rare! Bessent: Need to "wait and see" before understanding the Fed's rate cut

U.S. Treasury Secretary Bessent made a rare endorsement for the Federal Reserve’s decision to hold rates steady, marking a clear shift from his previous stance of pushing for rapid rate cuts.

Speaking at the Semafor World Economy Conference in Washington on Tuesday, Bessent said it was “the right thing to do” for the Federal Reserve to remain cautious in the face of the Iran war situation. He stated, “I believe rates should be lowered, but if they want to wait for clearer signals, I understand.”

This is Bessent’s most explicit public acknowledgment to date of the Fed’s pause in rate cuts, signifying a temporary easing of the Trump administration’s public pressure on monetary policy.

The above comments have direct significance for the market. The Fed was already expected by the market to keep rates unchanged this year, with federal funds futures even implying a minimal probability of a rate hike. Bessent’s latest statement provides a political endorsement for the Fed’s cautious stance, further lowering short-term expectations for rate cuts.

Change of stance: from urging rate cuts to understanding caution

Bessent’s comments stand in stark contrast to his previous public stance. In January this year, he clearly stated that rate cuts were “the only missing element for achieving stronger economic growth,” and bluntly said “the Fed shouldn’t delay.”

However, at the Semafor conference, Bessent’s tone had noticeably softened. “Should rates ultimately be lowered? Yes. But I think now we must wait and see,” he said. He also said the Fed’s decision to “sit back and observe” the developments in the Iran conflict is appropriate.

The context for this shift is the outbreak of war in Iran in late February this year, which led to a sharp rise in energy prices, driving overall inflation higher. Data from the U.S. Bureau of Labor Statistics show consumer prices rose 0.9% month-on-month in March, producer prices rose 0.5%, with soaring energy costs being the main driver.

Inflation assessment: Core data under control, energy shock is "temporary"

Despite elevated headline inflation figures, Bessent remains optimistic about the inflation outlook and uses core inflation data to support his judgment.

He pointed out that in March, core CPI rose only 0.2% month-on-month, and core PPI rose only 0.1%, both at relatively moderate levels. “I am highly confident that core inflation will continue to decline,” he said, “it’s quite controlled, and actually decreasing in many categories.”

Bessent characterized the current inflation pressure as a temporary phenomenon caused by a wartime energy shock, citing the “Team Transitory” argument for temporary inflation. “I don’t think this will become embedded in inflation expectations,” he said, adding that with the ceasefire deal pushing oil prices down sharply, U.S. Treasury yields have already started falling, reflecting cooling market inflation expectations.

Economic Outlook: Strong momentum before the war, a "catch-up" needed this quarter

On the economic growth outlook, Bessent acknowledged the Iran war impacted the current quarter, but remains cautiously optimistic about the annual trend.

He said that back in February, he expected annual economic growth to exceed 4%. When asked if he still maintains this view, he admitted “this quarter obviously needs some compensation,” but emphasized that “theoretically there will be a significant rebound.” He also noted that pre-war economic performance in January and February was “very strong,” with robust trends in aviation, trucking, and retail.

As for the longer-term impact of the Iran war, Bessent is relatively positive. “I think in retrospect—whether it’s after 50 days, 100 days, or longer—we’ll see 50 years of stability as a result,” he said.

Federal Reserve Personnel: Warsh appointment remains undecided

Bessent also commented on the Federal Reserve chair selection. Chair Powell’s term expires in May, but his successor, Trump nominee Kevin Warsh, currently faces obstacles in Senate confirmation.

According to CNBC, North Carolina Republican Senator Thom Tillis vowed to block the vote on Warsh’s confirmation, demanding that U.S. Attorney Jeanine Pirro end the criminal investigation related to Powell’s alleged Federal Reserve building overspending. Powell himself said the investigation is an attempt to pressure him to accelerate rate cuts.

Regarding Tillis’ obstruction, Bessent merely said, “We will wait and see what Senator Tillis needs to do,” keeping his remarks cautious and offering no further comment.

Speaking of Warsh’s governing style, Bessent stated his selection criteria is “who has an open mind,” and expects Warsh to conduct a thorough review of the Fed’s management structure, as “around 50% of each reserve bank’s employees do not report to the bank president,” revealing clear management issues.

Risk DisclaimerThe market has risks; investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ specific investment goals, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their situation. Investment based on this is at your own risk.