(Bloomberg) -- Treasury Secretary Scott Bessent signaled confidence in newly installed Federal Reserve Chairman Kevin Warsh and indicated President Donald Trump has given him space to make his own decisions.
"He came out tough, talking about the inflation," Bessent said on CNBC Wednesday. He said he was confident Warsh "will take the best path to satisfy both the inflation mandate and the growth mandate."
Asked whether he's discussed with Trump that it's not the right time to cut rates — something the president has long called for — Bessent said Trump "has said both in public and privately that he has every confidence in Kevin Warsh."
The Treasury chief also predicted that the US economy will accelerate "on a non-inflationary basis for the rest of the year." In separate remarks late Tuesday, he predicted that consumer-price increases will retreat as the Iran conflict subsides.
Warsh, overseeing his first Fed policy meeting last week, joined his fellow committee members in voting to keep interest rates unchanged, despite Trump's push for cuts. A renewed bout of inflation has seen Fed policymakers tilt away from considering lower rates, with many now seeing a case for boosting borrowing costs in 2026.
Trump understands that "bond markets have taken out more governments than howitzers," Bessent said in answering questions after a speech Tuesday at the Economic Club of New York. The remark was 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."
"On the Fed, I heard a green-light to hike," Neil Dutta, head of economics at Renaissance Macro Research, wrote in a note summing up Bessent's Tuesday remarks.
The Treasury chief 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.
"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.
Inflation Reading
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.
Bessent said on CNBC he expects US economic growth will rebound to 3% or better for 2026, accelerating on a "non-inflationary basis."
The Treasury chief also applauded Warsh's move last week to remove "forward guidance" that had previously offered a signal for future Fed policy. He backed Warsh's criticism of the so-called dot plot, where Fed policymakers offer their projections for the central bank's benchmark rate.
"I don't think anyone should do dot projections," Bessent said. He said that, in his previous career as a hedge fund manager, he had a trading model that "actually traded against the dots, because the dots are always wrong."
Budget Outlook
Turning to the fiscal outlook, Bessent reiterated his target of getting the deficit-to-GDP ratio down below 4% by the end of Trump's term. While the gap narrowed in 2025, "I don't know if we're going to make progress this year," he cautioned.
In the wake of the Supreme Court invalidating the bulk of Trump's tariff hikes, customs revenues have lately dropped, making it more challenging to shrink the deficit. Even so, Bessent indicated those may recover thanks to so-called Section 301 investigations underway by the US Trade Representative's office.
"If those studies are successful — and I have no reason to believe they won't be, but we don't know until they are — then the tariff rates are going to go back to exactly where they were," Bessent said.
Assuming the 301 studies go through, "we think that there's going to be a de minimis decline in tariff revenue in our projections for calendar year 2026," he said.
--With assistance from Cécile Daurat.
(Updates with further comments on Fed and federal budget, starting in second paragraph after 'Inflation Reading' subheadline.)
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