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Treasury Secretary Scott Bessent is urging Federal Reserve policymakers to approach interest rates with an “open mind,” arguing that artificial intelligence and deregulation could deliver productivity gains that help restrain inflation across the United States.

His appeal comes as policymakers confront conflicting signals from an economy that Bessent described as thriving under President Donald Trump. He credited tax cuts and deregulation as partial drivers of that strength, even as elevated fuel prices place pressure on American voters.

The strain from energy costs has become especially important ahead of the midterm elections in November. Fuel prices have climbed amid the conflict with Iran, creating a political and economic complication while the administration points to growth elsewhere in the economy.

Bessent framed his argument around the possibility that stronger productivity could allow the economy to expand without automatically producing another damaging inflation surge. In his view, the Fed should account for gains connected to artificial intelligence as well as the administration’s deregulation policies.

Fed Chairman Kevin Warsh, whom Trump picked to lead the central bank, understands that the economy is experiencing productivity gains similar to those seen during the internet boom of the 1990s, Bessent said during an appearance on Fox News’ Sunday Morning Futures.

Bessent said those gains could be “if not more substantial” than the advances recorded while Alan Greenspan was Fed chair. That comparison formed the heart of his case for policymakers to resist assuming that solid economic growth must necessarily require tighter monetary policy.

Greenspan “let things run,” Bessent said, referring to the former Fed chair’s approach during the internet boom. He added that “the board and the voters on the Fed should have an open mind because, again, it’s the deregulatory aspect.”

The inflation picture, however, remains complicated by energy markets. Inflation this year has been driven by record diesel and gasoline prices linked to the Iran war and Ukrainian attacks on Russia’s energy industry, according to the account presented in the source.

Those pressures have spread through the US economy and helped push bond yields higher around the world. The resulting rise in borrowing costs has intensified scrutiny of the Fed’s rate strategy, even as Bessent argues that underlying inflation has remained relatively contained.

Government data released Sept. 11 showed that US consumer prices excluding food and energy rose 0.3% in August. On an annual basis, that measure increased 2.4%, offering policymakers a reading that strips out the volatile categories now dominating inflation concerns.

Days after that report, the Fed under Warsh raised its benchmark interest rate for the first time since 2023. Bessent nevertheless maintained that the underlying inflation trend did not justify abandoning a more flexible view of economic growth and productivity.

“Core inflation has been very quiescent, and is has actually dropped over the past few months,” Bessent argued. His comments placed a clear emphasis on core price readings rather than the fuel costs that have been elevated by international conflict and attacks on energy infrastructure.

Bessent also addressed China’s role surrounding the Iran war. He said he expects Iranian oil deliveries to China to end soon, a development that would add to US pressure on Iran to reach a deal involving the reopening of the Strait of Hormuz.

“China has substantially reduced any assistance to Iran” and “there’s only 15 million more barrels of Iranian oil on the water,” Bessent said. He predicted that the final delivery to China would occur within roughly two weeks.

“Probably within the next two weeks they’re going to make their final delivery of oil to China and then they will have nothing,” Bessent said. His forecast linked the immediate oil supply picture to the broader pressure campaign surrounding Iran and the Strait of Hormuz.

Bessent’s message to the Fed ultimately rests on a distinction between energy driven price pressure and underlying inflation. While record fuel prices and rising bond yields complicate the outlook, he argues that productivity, artificial intelligence, and deregulation deserve greater weight in the central bank’s rate deliberations.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.