While the recent news on inflation has been generally bad, Treasury Secretary Scott Bessent expects price pressures to ease soon, just in time for the new chairman of the Federal Reserve to take office.
Bessent told CNBC on Thursday that the recent spike in energy supply inflation is likely to reverse as the U.S. “continues to deliver” crude oil to cushion the supply shock from the Iran war.
“I’m confident there’s nothing more temporary than a supply shock, and we can, we can, look at that, because core inflation was coming down even before the Iran conflict started,” Bessent told CNBC’s Joe Kernen on the sidelines of a summit between President Donald Trump and Chinese President Xi Jinping. “So I think core inflation will continue to decline.”
But that’s not a recent trend.
Separate figures this week showed consumer prices rose 0.6% in April, and were still up 0.4% when focusing on core costs excluding food and energy. The 12-month inflation rate was 3.8% for the core population and 2.8% for the core population.
Similarly, wholesale prices, a better indicator of pipeline pressure, rose 1.4%, taking the 12-month level to 6%, the highest level since late 2022. The inflation shock was also reflected in import and export prices, which also hit their highest levels in about four years.
Mr. Bessent said he thinks there will be one or two more “hot inflation numbers, but then we’ll have a lot of inflation.”
The Treasury secretary also said a “Warsh Fed” would soon be launched, a reference to incoming Chairman Kevin Warsh, who was confirmed by the Senate on Wednesday and will begin after current Chairman Jerome Powell’s term ends on Friday.
Bessent said he remains optimistic that this period will be different from the previous inflation spike in 2021-22. The previous move was in response to the coronavirus pandemic, which led to unprecedented fiscal and monetary stimulus and massive supply-demand imbalances. At the same time, Russia’s invasion of Ukraine hit the energy market, causing oil prices to soar.
Fed officials were then criticized for labeling the rise in prices as “temporary” and for tightening policy too slowly to prevent inflation from briefly exceeding 9%.
“I’ve never been with a team on a temporary basis during COVID-19,” Bessent said. “We’ll get to the other side of this situation, whether it’s days or weeks, but energy inflation will fall again.”
