Treasury Secretary Scott Bessent offered a carefully calibrated show of support for Federal Reserve Chair Kevin Warsh following the central bank’s quarter-point rate hike.
Appearing on CNBC’s “Squawk Box” on Sept. 21, Bessent declined to say whether he agreed with the increase. But he made something else unmistakable: Both he and President Donald Trump continue to have “great confidence” in Warsh.
That comes as a surprise, as the administration had made lower borrowing costs critical to its economic agenda, while Warsh is trying to contain inflation without crushing growth or unsettling the bond market.
Bessent also suggested the inflation picture might be less alarming beneath the surface. Core inflation, he argued, remains quiet, with much of the recent pressure concentrated in headline prices and potentially linked to an energy supply shock.
His answer stopped short of endorsing the hike. Yet it delivered a politically important signal about Warsh’s standing inside the White House.
Bessent backs Warsh without blessing the rate hike
Perhaps the most revealing part of Bessent’s answer was not his support for Warsh. It was the line he refused to cross.
When CNBC’s anchor pressed him to judge the quarter-point increase, Bessent responded: “I’m not going to talk about whether I agree with it or not.” That allowed Bessent to avoid turning an independent monetary-policy decision into an administration-approved move.
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For perspective, the Federal Reserve bumped its benchmark rate by 25 basis points on Sept. 16, taking the federal funds target range to 3.75% to 4%. It was the Fed’s first rate increase in more than three years.
He separated the Fed chair from the decision itself. Bessent said he had “great confidence in Chair Warsh” and stressed that “the president has great confidence in him.”
That is a meaningful political signal.
Bessent could have criticized the hike for threatening growth, or endorsed it as necessary inflation insurance. Instead, he preserved Warsh’s credibility while leaving the administration free to disagree with future policy.
That said, his inflation diagnosis also complicates the case for additional tightening.
Bessent argued that core inflation remains subdued, with recent pressure concentrated in headline prices and potentially reflecting an energy supply shock. If that shock fades, the Fed may have tightened policy in response to a temporary disturbance.
If it persists, Warsh’s move could prove valuable in preventing inflation expectations and long-term yields from becoming unanchored.
Also read: Scott Bessent’s net worth in 2026 as Treasury chief
Bessent says oil may be driving long-term rates
For investors, Bessent’s most consequential market observation came when he connected rising long-term yields to the energy shock rather than treating the bond sell-off purely as a verdict on U.S. debt.
For perspective, U.S. national debt has now skyrocketed above $40 trillion, as reported by Reuters, underscoring the scale of Washington’s borrowing burden.
He said 10- and 30-year Treasury yields now show among the “highest correlations ever” with crude prices and refining spreads. His shorthand was direct: “Look at the rates today. Look at the oil price.”
Put simply, if yields are rising mainly because markets fear a persistent energy-driven inflation shock, then easing geopolitical pressure and greater oil supply could reverse part of the move. Bessent said that once the conflict passes, oil markets should become better supplied and “rates should come down.”
He also confirmed that Treasury increased its purchases of longer-dated securities during a period of poor liquidity. But he carefully rejected the idea that officials can dictate yields, saying, “I can’t set the equilibrium price.”
For bond investors, the distinction is crucial. The buybacks are intended to restore market functioning, not cap yields. If Bessent is right, energy prices, not Fed policy alone, may determine the next major move in Treasurys and rate-sensitive stocks.
What Bessent’s reaction to the rate hike means for investors
Bessent’s remarks leave investors with a more nuanced setup than a simple higher-for-longer call. Warsh’s quarter-point hike protects Fed credibility, but Bessent’s refusal to endorse it leaves future tightening uncertain.
As I covered recently, Bessent’s broader assessment is that investors often mistake temporary shocks for lasting economic damage. He pointed to the sharp market decline after Liberation Day and the rapid recovery that followed, arguing that investors who reacted immediately missed the rebound.
That framework now applies to rates. If higher Treasury yields primarily reflect oil prices and an energy supply shock, rather than deteriorating fiscal confidence or entrenched core inflation, they could retreat as supply conditions normalize. That would help long-duration bonds, housing, and growth stocks.
But the downside case remains clear. Persistent energy inflation would keep prices elevated, force Warsh to remain restrictive, and pressure stock market multiples. Treasury buybacks can improve liquidity, but they cannot permanently suppress market yields.
The practical signal is to watch crude oil, core inflation, and the long end together. Their direction will determine whether Warsh’s hike becomes a one-off credibility move or the beginning of a tightening cycle.
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