Treasury Secretary Scott Bessent said Tuesday night that the Trump administration is working to position the American economy for success. He noted that he expects inflation to start to come down, artificial intelligence to at least double productivity, and that the administration’s efforts to deregulate the financial sector have unlocked some $3 trillion in lending capacity.
“Now that we are on the other side of this [Iran] conflict, gas prices will come back down, inflation will come back to target,” Bessent said in a wide-ranging speech at the Economic Club of New York.
Bessent urged allowing the negotiations with Iran to play out. He argued that Iran still sold its oil to China when the Strait of Hormuz was closed and that it’s better that Tehran is getting a rate of $75 today than 80% of $115 a few weeks ago.
“This is a very conditional performance-based negotiation, and we are offering them carrots, and then there are sticks,” Bessent said of negotiations with Iran.
Meanwhile, he said he’s “confident” that Fed Chairman Kevin Warsh will optimize the path for both inflation and economic growth, stressing that President Trump said at Warsh’s swearing-in that he would be independent and he should do what he wants.
“Look, the president understands … the bond market has taken out more governments than howitzers,” said Bessent. “I believe that he has complete confidence in the Fed chair to do the right thing.”
The comment was an acknowledgment that if inflation runs away and the Fed doesn’t rein it in, the bond market will send rates higher, doing the work for the Fed and increasing borrowing costs.
Bessent also said he thinks AI could at least double productivity, comparing the current technology-driven cycle with the internet boom of the 1990s.
Former Fed Chairman Alan Greenspan, who died Monday, “was correct that the tech boom doubled productivity,” Bessent said. “Could we do at least that or more?”
He pointed to hyperscalers like Meta (META) and Google (GOOG) that are poised to spend $750 billion on AI. He said the biggest risk when it comes to AI is China getting ahead of the US, arguing that the US is already ahead and that’s why China is willing to have discussions on AI.
Bessent also said it will take lower interest rates and more supply of homes to solve the conundrum of expensive housing. Bessent said that low mortgage rates left over from COVID are holding back potential sellers and keeping turnover low for buyers. He noted that before the Iran conflict, mortgage rates briefly went below 6%, and mortgage applications rose.
