Bessent tells markets that a new Fed hike is still on the table

Treasury Secretary Scott Bessent signaled on Wednesday that the Federal Reserve might need to raise interest rates again, telling CNBC’s Brian Sullivan that such a move would not necessarily be an error. The remarks landed just hours after the Fed confirmed it would hold rates steady at its October meeting. That pause came after the central bank hiked borrowing costs in September, marking the first increase in three years. Traders in fed funds futures already expect the Fed to resume hiking at its December meeting.

Bessent’s comments stand out because he serves as a close advisor to President Donald Trump. The president has long pressed the Fed to lower rates. Trump applied pressure on Jerome Powell, the previous chair, during Powell’s final months in office. Now, with Kevin Warsh leading the central bank, Bessent said both he and the president believe Warsh is handling the job well. “I think Chair Warsh is off to a great start,” Bessent said, adding that he has “great confidence in him.”

The secretary also addressed the impact of the U.S. war with Iran on inflation. He urged the Fed to view the energy price shock as temporary. The conflict has sharply cut global crude production, pushing annual inflation above the Fed’s 2% target. Bessent said American efforts to isolate the Iranian economy, called Operation Economic Outcast, have been “very successful.” He cited internal estimates suggesting Iran’s economy could shrink by as much as 25% over the next year.

On the financial side, Bessent reacted to Elon Musk’s warning that more than 200 neocloud firms face consolidation. Musk called it a “guppy-level death” scenario on Sunday. Bessent remained calm, stating that he does not think the situation is problematic. “The neoclouds are a small component of the overall ecosystem, and we’re still seeing the financing getting done,” he said.

Looking ahead, Bessent expressed optimism about the upcoming third-quarter GDP data, which is scheduled for release on Thursday. He predicted the numbers would be “strong,” though he noted that he had not seen them yet.