Treasury Secretary Scott Bessent struck a new tone last week. He still wants the Federal Reserve to slash interest rates. But he gets it if Chair Jerome Powell holds off amid the fog of war.
Speaking April 14 at the Semafor World Economy Conference in Washington, Bessent said core inflation remains “quite under control and actually dropping in many categories.” He added, “I believe rates should be cut, but that if they want to wait for some clarity, I understand that.” Yahoo Finance. The day before, he’d been blunter: “Eventually. I think now that we have to wait and see.” Semafor.
This marks a shift. For much of President Donald Trump’s second term, Bessent and the White House hammered the Fed for quicker cuts. Trump himself demanded rates drop to 1% or below. Back in January 2026, Bessent called reductions “the only ingredient missing for even stronger economic growth.” Late last year, Trump hinted his incoming Fed chair—now-nominee Kevin Warsh—would slash rates “by a lot,” sparking a Bitcoin rally past $90,000.
War complicates everything. The Iran conflict erupted in late February, blockading the Strait of Hormuz. Consumer prices jumped 0.9% in March. Producer prices rose 0.5%. Headline inflation hit 3.3% year-over-year—the sharpest spike since May 2024—per Bureau of Labor Statistics data. Core measures stayed tame: 0.2% monthly for consumers, 0.1% for wholesalers. Bessent bets the surge is a fleeting energy hit. Prices should ease once fighting stops.
Fed Faces Heat from War, Tariffs, and Politics
Powell’s crew has kept rates at 3.50%-3.75% since January. Markets once priced in multiple cuts this year. Now? Bets have faded as oil tops $100 a barrel. Fed officials echo the caution. Governor Stephen Miran, a Trump appointee, said the inflation picture “is more complicated” and he’s rethinking his dovish outlook. Johns Hopkins Financial Economics.
Former Treasury Secretary Janet Yellen weighs in too. On April 15 at the HSBC Global Investment Summit, she flagged one possible cut later in 2026—if inflation steadies. “If I had to write one thing down… maybe there would be a cut later in the year.” But the Iran war fuels a “fresh inflation shock,” with crude up over 30%. She called Trump’s Fed pressure “the most serious threat to Fed independence” she’s seen. Firstpost.
Back in March, Yellen was blunter. Via video to an S&P Global conference, she warned the conflict “puts the Fed even more on hold, more reluctant to cut rates than they were before this happened.” It hits growth, boosts prices—already a point above the 2% target, half from Trump’s tariffs. Prolonged Hormuz closure? Oil stays high. Markets might doubt the Fed’s 2% resolve. Yahoo Finance.
Yellen doubts Warsh’s clout. At a recent conference, she said he lacks the “credibility” Alan Greenspan had to sway the FOMC on cuts tied to AI productivity. “I don’t think that Warsh walks in with that level of credibility… I really don’t see the FOMC accepting this in the short run.” Wall Street Journal.
Bessent clarified to reporters: “The impetus here is they will need to cut rates.” Observation, not opposition. No policy flip. Yet. CNBC. Politico reported his nod to waiting for “clarity.” Politico.
And the politics? Trump patience wears thin. Bessent and Miran may buy Warsh time in confirmation hearings. But FOMC votes demand clarity—no room for waffling. Hold steady? Or dissent and risk Trump’s wrath.
Core trends favor easing eventually. Bessent’s confidence in declining core inflation aligns with pre-war data. If energy shocks fade, Powell regains room. Warsh, if confirmed, inherits that pivot.
But risks mount. Tariffs add persistent pressure. Geopolitics could drag. Fed independence hangs in balance.
Bessent’s words signal detente. Treasury pushes cuts—gently. Fed watches data. Markets? They price uncertainty. Yields hover. Equities wobble. Bitcoin cools.
Powell stays mum. Next meeting looms. Clarity? Not yet.
One thing’s sure. War’s end reshapes the board.
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