Bessent Urges Fed to Refrain From Raising Rates Amid Energy Price Shock

US Treasury Secretary Scott Bessent urged the Federal Reserve not to raise interest rates in response to what he described as an "energy supply shock" linked to the military conflict led by the United States against Iran.

In an interview with CNBC, Bessent said that "the Fed must recognize that this is an energy supply shock," noting that the underlying US economy is very strong. He added that "raising rates excessively in the midst of an energy supply shock that is receding" poses a problem, stressing that the Fed is supposed to look forward, not backward.

The central bank kept interest rates at a range of 3.75 to 4 percent at its last monetary policy meeting. Projections from the CME FedWatch tool indicate an 89.4 percent probability that rates will be raised to 4.00-4.25 percent at the next meeting scheduled for December 9.

The Fed has raised rates once and held them steady five times since the outbreak of the conflict with Iran, despite continuous pressure from the White House to cut them. By September, energy prices had jumped 20.4 percent year on year. Bessent noted that the Fed carried out three rate cuts over the past year.

On the other hand, Fed Governor Christopher Waller announced on Tuesday that he intends to support a quarter-point rate hike at the December 8-9 meeting, on the condition that the core consumer price index does not reach 0.3 percent or more. The consumer price index report was subsequently released, recording a monthly increase of 0.4 percent, exceeding Waller's stated condition.

Consumers are paying the price for these pressures at the gas pump; the average price of a gallon currently stands at $3.87 ($1.02 per liter), compared with $4.34 ($1.14 per liter) a month ago, though the price remains far above the $2.98 ($0.79 per liter) level recorded on February 28, when the United States and Israel launched their first strikes against Iran.

Bessent's remarks come on the heels of a US jobs report that beat expectations, with the economy adding 165,000 jobs in October, which lends weight to the case for a rate hike.