Bessent sees ‘substantial disinflation’ ahead as Warsh takes over the Fed
Although the latest inflation news has been universally bad, Treasury Secretary Scott Bessent expects price pressures to ease soon, just in time for the new Federal Reserve chairman to take office.
Speaking to CNBC on Thursday, Bessent said the recent energy-fueled inflation surge will likely reverse as the United States “continues to pump” oil, easing the supply shock from the Iran war.
“I firmly believe that nothing is more temporary than a supply shock, and we can get through it because core inflation was falling before the Iran war started,” Bessent told CNBC’s Joe Kernen on the sidelines of President Donald Trump’s summit with his Chinese counterpart Xi Jinping. “So I think core inflation will continue to fall.”
But this is not the recent trend.
Separate readings this week showed consumer prices rose 0.6% in April and were still up 0.4% even when focusing on core costs that exclude food and energy. Twelve-month inflation was 3.8% in inflation and 2.8% in core inflation.
Similarly, wholesale prices, a better indicator of pressures on the pipeline, rose 1.4%, bringing the 12-month level to 6%, the highest since the end of 2022. The inflation shock also manifested itself in import and export prices, and these prices reached their highest levels in nearly four years.
Bessent said he thinks there will be one or two more “hot inflation numbers,” but then I think we’ll see a significant disinflation.
The Treasury chief also noted that the “Warsh Fed” is about to begin, referring to new Chairman Kevin Warsh, who was confirmed by the Senate on Wednesday and will begin after current Chairman Jerome Powell’s term ends Friday.
Bessent said he remained optimistic that this period was different from the last inflation spike in 2021-22. The previous move came in the wake of the Covid pandemic, which led to a massive supply and demand imbalance alongside unprecedented fiscal and monetary stimulus. At the same time, Russia’s invasion of Ukraine hit the energy markets, causing oil prices to rise.
Fed officials were later criticized for considering the price increase “temporary” and tightening policy too late to prevent inflation from exceeding 9% at one point.
“I was never on the team temporarily during Covid,” Bessent said. “We’ll get to the other side of this, and I don’t know if it’ll be a few days or a few weeks, and energy inflation will drop again.”
