Bessent Sees Substantial Disinflation Ahead as Warsh Era Begins at the Fed

CNBC reported Thursday that Treasury Secretary Scott Bessent expects price pressures to cool sharply in the coming weeks, even as the latest inflation data delivered another unwelcome surprise. Speaking from the sidelines of President Donald Trump’s summit with Chinese President Xi Jinping, Bessent said he anticipates one or two more elevated readings before substantial disinflation sets in.

Bessent’s Case for a Cooling Price Environment

Bessent anchored his optimism in energy markets. He argued that the recent oil-driven price surge stems directly from the conflict with Iran and will reverse as the U.S. continues ramping up domestic production. He told CNBC that supply shocks are inherently short-lived, pointing out that core inflation had already been declining before hostilities with Tehran escalated. He expects that downward trend to resume once the energy disruption fades.

The Treasury secretary drew a clear distinction between the current episode and the 2021-22 inflation spiral. That earlier surge was amplified by pandemic-era fiscal and monetary stimulus, acute supply-demand imbalances, and a Russian invasion of Ukraine that rattled global energy markets. Officials at the time misjudged price pressures as fleeting. Bessent emphasized he did not share that view then and does not believe the same mistake is being repeated now.

A Rough Week for the Inflation Data

The backdrop for Bessent’s remarks was decidedly uncomfortable. April consumer prices climbed 0.6% on a monthly basis, with core costs up 0.4% excluding food and energy. The annual headline rate reached 3.8% and the core reading 2.8%. Wholesale prices were even more alarming, jumping 1.4% in a single month and lifting the 12-month producer price gauge to 6%, a level unseen since late 2022. Import and export price indexes also posted their steepest rises in roughly four years.

The Powell-to-Warsh Handoff

The inflation debate arrives at a pivotal moment for the central bank. Outgoing Chair Jerome Powell reaches the end of his term Friday, with Kevin Warsh confirmed by the Senate on Wednesday to succeed him. Bessent gestured toward the approaching leadership change, referring to the incoming “Warsh Fed” as a new chapter. Warsh, a former Federal Reserve governor, has long advocated for a more rules-based approach to monetary policy and is seen by markets as broadly hawkish on inflation.

What Markets Are Watching Next

Investors will now monitor whether Bessent’s disinflation call proves correct before Warsh formally begins shaping rate decisions. A sustained drop in energy costs would lend credibility to the Treasury’s view. Persistent core pressure, however, would complicate any early pivot signals from the new Fed leadership.

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