Bessent Warns Fed: Keep Rates Flexible Amid AI-Driven Productivity Boom

Treasury Secretary Scott Bessent urged Federal Reserve officials to remain flexible on interest rates. He argued that productivity gains from artificial intelligence and deregulation could allow the US economy to grow faster without generating significantly more inflation.

Bessent pointed out that under President Donald Trump, the US economy experienced strong growth, thanks in part to tax cuts and reduced regulation. However, higher fuel costs stemming from the Iran conflict have complicated the inflation outlook ahead of the November midterm elections.

Fed Chair Kevin Warsh has acknowledged parallels between the current productivity boom and the internet-driven expansion of the 1990s under former Fed Chair Alan Greenspan. Bessent noted that Greenspan 'let things run,' suggesting that the Fed should adopt a similar approach, allowing for more growth without aggressive rate increases.