Bessent Urges Fed Openness on Rates, Citing AI and Deregulation as Inflation Curb

US Treasury Secretary Scott Bessent said Federal Reserve policymakers should keep an "open mind" on interest rates, arguing that productivity gains from artificial intelligence (AI) and deregulation will help restrain US inflation.

Bessent made the remarks while discussing the US economy. He said the economy is thriving under Trump, partly thanks to tax cuts and deregulation, even though higher fuel prices driven by the conflict with Iran are weighing on American voters ahead of the November midterm elections.

Speaking on a program, Bessent said Fed Chair Kevin Warsh, chosen by Trump, is "very clear" that the US economy is currently experiencing growth "on par with, or even more pronounced than" the boom during Alan Greenspan's tenure as Fed chair during the 1990s internet boom.

Bessent said Greenspan at the time chose to "let the economy run," and "the Fed's Board of Governors and the Fed's voting members should keep an open mind, because this also involves the deregulation factor."

For investors, Bessent's comments highlight the core of the debate over the rate outlook. If AI and deregulation are boosting the economy's capacity, the Fed may have more room to tolerate strong growth without responding with aggressive rate hikes. That could benefit stocks and other risk assets.

But persistently high energy prices could keep inflation elevated, pushing up US Treasury yields and keeping rate-sensitive sectors under pressure.

So far this year, inflation has been driven by record-high diesel and gasoline prices tied to the war with Iran and Ukrainian attacks on Russia's energy industry, with effects rippling through the US economy and pushing up global bond yields.

According to government data released on September 11, US consumer prices excluding food and energy rose 0.3% month-on-month in August and 2.4% year-on-year. Days later, the Fed under Warsh raised its benchmark rate for the first time since 2023.

Still, Bessent argued that "core inflation has been very stable and has actually declined somewhat over the past few months."