Bessent Sees Substantial Disinflation After 1-2 More Hot Inflation Reports

US Treasury Secretary Scott Bessent expects significant price relief in the coming months, even as WTI crude trades over $100 a barrel.

U.S. Treasury Secretary Scott Bessent said he anticipates “substantial disinflation” following one or two more months of high inflation data, arguing the current spike is a temporary supply shock that will quickly reverse. Speaking from Beijing on CNBC, Bessent’s comments come as Kevin Warsh takes the helm as the new Federal Reserve Chairman, navigating an economy strained by geopolitical conflict.

"I firmly believe that nothing is more transient than a supply shock," Bessent said in the May 14 interview. "We can look through that because before the Iranian conflict began, core inflation was coming down. So I think core inflation will continue coming down."

Recent Producer Price Index and Consumer Price Index reports have shown persistent price pressures, largely driven by surging energy costs, with West Texas Intermediate crude rising above $100 per barrel. However, Bessent pointed to the significant backwardation in the futures curve, where prices for later delivery are substantially lower, as evidence that the market expects the spike to be short-lived. He also noted the United Arab Emirates' exit from OPEC and record U.S. energy production as factors that will ensure the market remains well-supplied.

The Treasury Secretary’s outlook provides a crucial backdrop for the new Federal Reserve leadership. With Warsh’s term beginning, the central bank faces the challenge of taming inflation without derailing the economy. Bessent expressed confidence that after a few more hot reports, the disinflationary trend would give Warsh and the Fed a clear runway for policy.

US-China Trade and Investment

During his visit to Beijing, Bessent detailed progress on economic discussions with China, including the formation of a new board of trade and a board of investment. The goal is to reduce the bilateral trade deficit, which President Trump has brought down to what Bessent termed "only $200 billion."

A key proposal involves mutually cutting tariffs on approximately $30 billion worth of imports in non-strategic areas. "Things that the U.S. doesn't want to make that we're never going to reshore," Bessent explained, citing fireworks and low-end consumer goods as examples. The U.S. is also pushing China to purchase more American energy, with plans to expand export facilities in Alaska to meet demand from Asian markets seeking to diversify away from the Middle East.

AI Leadership and Guardrails

The Treasury Secretary also confirmed that the U.S. and China, the world's two "AI superpowers," are beginning to establish protocols for the safe development of artificial intelligence. Bessent stressed that the U.S. is the "undisputed leader," which allows it to negotiate from a position of strength.

"The reason we are able to have fulsome discussions with the Chinese on A.I. is because we are in the lead," he stated. Bessent said the leading U.S. AI firms—Anthropic, OpenAI, and Google/Gemini—have been "very good partners" with the government, voluntarily collaborating to establish safety guardrails without stifling innovation. The administration's goal is to codify best practices with U.S. values and then roll them out globally.

This article is for informational purposes only and does not constitute investment advice.