Treasury Secretary Scott Bessent expressed that an additional Federal Reserve rate hike would not necessarily be a mistake. His remarks came shortly after the Fed decided to maintain interest rates at their current levels during the October meeting, a move anticipated by the markets. Bessent emphasized his confidence in Fed Chair Kevin Warsh, stating that Warsh has been doing well in balancing the goals of full employment and stable inflation, despite pressure from President Donald Trump to lower rates.

The Fed’s decision to pause rates followed its first increase in three years last month, and futures markets expect possible hikes again in December. Bessent suggested that the Fed keep an open mind regarding the effects of the ongoing energy supply shock, which stems from the U.S. conflict with Iran and has contributed to rising inflation beyond the central bank’s 2% target. He also highlighted the success of Operation Economic Outcast, the U.S. effort to isolate the Iranian economy, which is estimated to contract by up to 25% within a year.

Addressing concerns in the AI sector, Bessent downplayed worries about credit conditions related to AI-focused companies known as neoclouds. Despite recent market struggles and warnings from Tesla’s Elon Musk about potential consolidation in this segment, Bessent believes these companies are still a small part of the larger ecosystem. He affirmed that financing and deal activity in the AI cloud infrastructure space remain strong and manageable.

Looking ahead to upcoming economic data, Bessent anticipates a strong report on third-quarter GDP but noted that he has not yet seen the numbers. His broader comments reflect a cautious optimism about the economy’s resilience amid geopolitical tensions, inflation pressures, and the evolving technology landscape. He encourages a flexible approach to monetary policy as the Fed navigates these complex challenges.