Bessent tells the Fed AI productivity gains mean it can ease up on rate hikes

Treasury Secretary Scott Bessent said the Federal Reserve should keep an open mind on rates because AI and deregulation are doing the inflation-fighting for it. He made the case days after the Fed hiked and 16 of 18 officials signaled more increases are coming.

Bessent didn't call for cuts outright. What he did on September 27 was push back, hard, against the idea that the Fed needs to keep hiking to keep inflation down. According to Bloomberg, he said policymakers should have an "open mind" on rates, arguing that productivity gains from artificial intelligence and Trump-era deregulation will do more to hold down prices than another rate increase would. "The board and the voters on the Fed should have an open mind because, again, it's the deregulatory aspect," he said, a line that reads less like a suggestion and more like a warning shot at Fed hawks.

The timing is what makes this land. Less than two weeks earlier, on September 16, the Fed had raised its benchmark rate to a range of 3.75% to 4%, the first hike in three years. That alone would have been news. What's kept markets on edge since is the dot plot: 16 of the Fed's 18 officials penciled in at least one more hike before year end, and four of them see two more coming. Bank investors read that as a threat, not a gift, and priced it accordingly.

Bank stocks tell the story. JPMorgan fell 1% and Wells Fargo dropped 3% the day of the hike, while Goldman Sachs gave back 4%. Since then, bank shares are down 8.4% and off 4.9% for the month, even though textbook logic says higher rates should widen the margin banks earn on loans. The move had been so telegraphed that it arrived with no marginal buyer left to cheer it, and the bigger worry, more hikes still to come, has outweighed any near-term benefit to lending margins.

Bessent's case isn't new, exactly. He first floated it at the Economic Club of New York earlier this year, arguing that AI could at least double productivity, the same way he says the 1990s tech and internet boom did. "The tech boom doubled productivity," he said then. "Could we do at least that or more?" He's pointed to hyperscalers like Meta and Google, which are on pace to spend a combined $750 billion on AI infrastructure, as evidence the investment is real, not speculative. His argument is that if AI genuinely lifts output per worker, the economy can grow faster without generating the kind of demand-driven inflation that would normally force the Fed's hand.

It's a real argument, and it's also a convenient one. Treasury benefits directly from a lower cost of government borrowing, and Bessent has spent much of 2026 pushing the Fed toward easier policy under one banner or another. What's new this time is the specific mechanism: instead of asking for cuts because growth needs support, he's arguing inflation itself is already being solved by something other than interest rates. That's a harder claim to dismiss and a harder one to verify in real time.

On the inflation numbers themselves, Bessent has something to work with. He's said core inflation has been "very quiescent" and has actually dropped over the past few months. The headline number staying elevated has more to do with diesel and gasoline prices, pushed up by the conflict with Iran and Ukrainian strikes on Russian energy infrastructure, than with anything resembling the wage-price spiral the Fed usually worries about. If that reading holds, hiking rates to fight fuel-price inflation caused by geopolitics does little except slow down everything else in the economy that a rate hike actually touches.

The bond market isn't buying the calm story yet. The 30-year Treasury yield hit 5.501% in late September, its highest level since June 2004, according to Bloomberg and CNBC. That's the market pricing in either persistent inflation, mounting worry about the federal debt load, or both, and it's happening at the same time Bessent is telling the Fed inflation is basically handled. Someone is wrong, or at least early.

What happens next matters well beyond bank stocks. A Fed that takes Bessent's framing seriously, that treats AI-driven productivity as a standing disinflationary force, would have room to pause hikes even with headline inflation running hot on energy. A Fed that doesn't will keep hiking into a bond market that's already flashing 2004-level yields, and tech and AI valuations that have priced in years of cheap capital will be the first place that tension shows up. Founders raising right now are watching this fight over a technical Fed argument because it will decide what their next round costs to close.

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