US Treasury Secretary Bessent: Further Fed rate hikes would not necessarily be a policy mistake; confident in monetary policy under Warsh's leadership

US Treasury Secretary Bessent said on Wednesday that further Fed rate hikes in the future would not necessarily mean a monetary policy mistake. Although US President Trump has long called for lower interest rates, Bessent stressed that both he and Trump are satisfied with Fed Chairman Warsh's performance and believe Warsh can strike a balance between full employment and price stability. In an interview with media, when asked whether continued Fed rate hikes in the future would constitute a monetary policy error, Bessent responded: "Not necessarily." The remark drew attention because Bessent is a key economic policy adviser to Trump, and Trump had previously publicly demanded Fed rate cuts multiple times and continued to pressure former Fed Chairman Powell during the final months of his term. Bessent did not oppose further rate hikes this time, but instead expressed support for Warsh's policy judgment. He said: "I think Chairman Warsh has had an excellent start. As I often say, I have full confidence in him." Bessent made the remarks hours after the Fed announced at its October monetary policy meeting that it would keep rates unchanged, maintaining the federal funds rate target range at 3.75% to 4%, in line with widespread market expectations. Previously, the Fed implemented its first rate hike in three years in September. Although it chose to pause this month, interest rate futures market traders generally expect the Fed to raise rates again in December. Energy price shock may be temporary Regarding the inflation pressure currently facing the United States, Bessent said he hopes the Fed will assess the supply shock caused by rising energy prices with an open attitude and consider its potentially temporary nature. Affected by the war between the United States and Iran, global crude oil production has fallen sharply, and energy prices have continued to rise, pushing US inflation further away from the Fed's long-term target of 2%. Bessent believes that when formulating policy, the Fed should fully consider the nature of the energy supply shock rather than making judgments solely based on short-term price increases. This view implies that although Bessent does not believe further rate hikes are necessarily a policy error, he also hopes the Fed will carefully assess whether rising energy prices will continue to push up overall inflation. Meanwhile, Bessent also discussed the US government's economic pressure measures against Iran. He said that US actions aimed at further isolating Iran's economy have achieved significant results. According to internal US government estimates, Iran's economy could shrink by as much as 25% within a year. However, this figure is an internal US government forecast, not an already realized magnitude of economic contraction. Downplays AI debt financing risks, says problems at emerging cloud computing companies are not a concern In addition to monetary policy, Bessent also responded to market concerns about risks related to artificial intelligence (AI)-related debt financing. Recently, as technology companies continue to expand AI infrastructure investment, the scale of related bond issuance has grown rapidly, and some investors have begun to worry that rising financing costs and heavier corporate debt burdens could trigger broader credit risks. In response, Bessent said the US Treasury is closely monitoring changes in AI-related bond yields, but there is currently no reason for excessive concern. He specifically mentioned emerging cloud computing companies that have recently come under pressure in the market. These companies mainly provide specialized cloud infrastructure supporting AI computing and typically require substantial investment in building data centers and purchasing high-performance chips. As doubts grow over returns on AI investment and the sustainability of debt financing, shares and bonds of some emerging cloud computing companies have recently come under pressure. Tesla, Inc. (TSLA.US) CEO Musk warned on Sunday that more than 200 emerging cloud computing companies may face large-scale elimination and industry consolidation in the future. However, Bessent does not believe the financing pressure on these companies will pose a major threat to the overall financial system. He said: "I don't think this is a problem at all. Emerging cloud computing companies are only a small part of the entire ecosystem, and we still see financing transactions being completed and related deals still moving forward." Bessent's remarks indicate that although the scale of AI infrastructure financing is expanding rapidly and some companies are facing market pressure, the US Treasury currently does not regard related risks as systemic. Expects strong US third-quarter GDP performance When discussing the US economic outlook, Bessent also said he expects the third-quarter gross domestic product (GDP) data to be released on Thursday to be strong. However, he specifically clarified that he had not seen the data in advance. Overall, Bessent's interview sent two important signals. On the one hand, a key economic official in the Trump administration does not regard further Fed rate hikes as an inevitable policy error and has publicly expressed trust in Warsh. On the other hand, the Treasury believes that current AI-related debt financing risks remain within a controllable range. As US inflation pressure remains elevated and economic growth remains resilient, the market will continue to focus on whether the Fed resumes rate hikes in December and whether there are further changes in the Trump administration's attitude toward monetary policy.