U.S. Treasury Secretary Bessent calls out: inflation will cool back to the target! Federal Reserve Chair Hauser will balance economic growth and price stability

U.S. Treasury Secretary Scott Bessent said on the 24th, after delivering a speech at the New York Economic Club, that inflation will cool down with the conflict in Iran and fall back to the 2% target, and that the new chair of the Federal Reserve, Hsu, will optimize the dual path of growth and price stability.
(Background: Breaking News — The U.S. Senate officially confirms Kevin Warsh to take over as the new Chair of the Federal Reserve!)
(Additional context: The U.S. announces the lifting of "Iran oil sanctions" for 60 days; the crisis in the Strait of Hormuz may ease, and global inflation may cool further.)

Table of Contents

Toggle

• Three Major Catalysts for Inflation Cooling: Energy, Bonds, AI
• Hsu’s First Test: Keeping Rates Unchanged, but Hawkish Signals Already Out
• A Strong U.S. Dollar Is More Than Just an Exchange Rate: Bessent’s Three Economic Pillars
• Market Reaction: Goldman Sachs Gives a 50% Chance of a Rate Hike in July

U.S. Treasury Secretary Scott Bessent said on the 24th, after delivering a speech at the New York Economic Club, that consumer inflation will cool down with the Iran war and fall back to the 2% target, and that the new Chair of the Federal Reserve, Kevin Warsh, will take into account two paths—economic growth and price stability.

When answering reporters’ questions, Bessent clearly expressed confidence in Hsu: “I am sure the Chair of the Federal Reserve will optimize the dual path of inflation and economic growth.”

Three Major Catalysts for Inflation Cooling: Energy, Bonds, AI

Bessent pointed out that the drivers behind the cooling of inflation come from three directions. First is energy costs. The U.S. and Iran are holding ceasefire talks. Bessent said, “I believe we have already crossed this conflict; oil prices will fall, and inflation will return to the target level.”

Second is the power of the bond market. Bessent cited a classic metaphor: “Trump understands that the government that the bond market topples is more than the one artillery can topple.” He emphasized that this is meant to imply that after inflation boosts long-term interest rates, the government’s fiscal position will face pressure.

Third is the growth potential brought by artificial intelligence. Bessent said that he and Trump “have already seen the tangible effects of artificial intelligence on economic growth,” which provides a basis for achieving low inflation and high growth at the same time.

Hsu’s First Test: Keeping Rates Unchanged, but Hawkish Signals Already Out

At the first FOMC rate decision meeting that Hsu chaired last week, along with his colleagues, he voted to keep rates unchanged. However, several policymakers have shifted to a more dovish stance and begun considering rate hikes within 2026. A Bloomberg survey shows economists generally expect the May inflation data—the PCE price index preferred by the Federal Reserve—to have jumped to an annual year-over-year rate of 4.1%, more than twice the 2% target; core PCE is also expected to rise to 3.4%.

Bessent emphasized that Hsu will not face pressure from Trump to cut rates: “The president has clearly stated at Hsu’s inauguration ceremony that he will maintain independence. I fully believe Hsu will make the right decision.”

A Strong U.S. Dollar Is More Than Just an Exchange Rate: Bessent’s Three Economic Pillars

In his speech, Bessent also proposed three pillars of U.S. economic policy: first, responsibly easing financial regulation, accelerating “economic privatization”; second, restructuring international trade relations, where tariffs are a tool rather than a goal; third, integrating economic security with national security.

When asked whether a “strong U.S. dollar” conflicts with “manufacturing competitiveness,” Bessent said: “When people talk about a strong dollar, I don’t think of the Bloomberg dollar index. I think it means building the foundation that makes people willing to come to this country—tax certainty, regulatory certainty, and energy certainty.”

Market Reaction: Goldman Sachs Gives a 50% Chance of a Rate Hike in July

Bessent’s remarks echoed the latest views from multiple institutions. On the same day, Goldman Sachs’ multi-asset investment chief Lindsay Rosner warned that there is a 50% chance the Federal Reserve will raise rates in July, saying, “The wealth effect from stock price increases may be reflected in the inflation data, becoming a catalyst for a rate hike.” Morgan Stanley’s chief strategist Mike Wilson, meanwhile, noted that liquidity contraction is the main near-term risk for U.S. stocks, but he believes Hsu’s FOMC meeting is “a good and necessary starting point for rebuilding the Federal Reserve’s credibility.”

From a Taiwan perspective, Taiwan’s export-oriented economic structure is also facing a double squeeze—rising U.S. dollar interest rates increase pressure on the New Taiwan dollar, while energy costs and AI capital expenditures may transmit through import prices to consumer prices. Taiwan’s Directorate-General of Budget, Accounting and Statistics reported in June that the year-on-year consumer price inflation rate reached 2.7%, exceeding the upper bound of the central bank’s 2% target range.