Bessent Signals Confidence in Warsh, Sees Inflation Coming Down

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(Bloomberg) — Treasury Secretary Scott Bessent signaled confidence in newly installed Federal Reserve Chairman Kevin Warsh during remarks Tuesday, and predicted that inflation will retreat as the Iran conflict subsides.

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“I am confident that the Fed chair will optimize the path for both inflation and economic growth,” Bessent said in answering questions after a speech at the Economic Club of New York.

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Asked whether the new Fed chief would face pressure from Donald Trump to lower interest rates, Bessent highlighted that the president said during Warsh’s swearing-in ceremony that he would be independent.

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Overseeing his first Fed policy meeting last week, Warsh and his fellow committee members voted to keep interest rates unchanged, despite Trump’s longstanding calls for cuts. A renewed bout of inflation has seen policymakers tilt away from considering lower rates, with many now seeing a case for boosting borrowing costs in 2026.

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Trump understands that “bond markets have taken out more governments than howitzers,” Bessent said, in an apparent reference to the political consequences of inflation-fueled increases in longer-term borrowing costs. “So, I believe that he has complete confidence in the Fed chair to do the right thing.”

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Inflation Outlook

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Bessent also predicted that consumer price gains will slow now that US and Iranian negotiators are working to bring an end to the war in Iran — which had sent energy costs skyrocketing. 

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“Now that we are, I believe, on the other side of this conflict, gas prices will come back down, inflation will come back to target,” he said.

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Data due Thursday are expected to show the Fed’s preferred inflation gauge jumped 4.1% in May from a year before. That’s more than double the Fed’s 2% target. The core figure, which strips out food and energy costs, is seen rising 3.4%, a survey of economists by Bloomberg shows. 

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Bessent also said that the issuance of a 60-day waiver for Iranian oil sales was “a general benefit to the global markets,” and part of an “arc of a negotiation” with the Iranians.

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Earlier Tuesday, the Republican-led Senate voted for the first time to end the war with Iran, showcasing popular sentiment against Trump’s Middle East venture.

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Dollar Comment

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The Treasury chief, in his speech, outlined principles for US economic statecraft, saying the nation must move past the liberal post-World War II principles that were based on assumptions that “failed to materialize.” Instead, Washington must focus on reducing vulnerabilities to foreign coercion, and demand reciprocity from its partners.

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Asked about the contradiction between seeking a strong dollar and aiming to bolster US manufacturing competitiveness, Bessent said the two aren’t in conflict. “When people talk about a strong dollar, I don’t think it is the Bloomberg Dollar Index,” he said. Noting that the dollar is down since the start of last year, he said, “I don’t wake up and think, great, it helped the economy. I just think that it’s a price on the screen.”

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—With assistance from Cécile Daurat.

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