US Treasury warns against rate hikes amid Iran-war energy shock

US Treasury Secretary Scott Bessent has urged the Federal Reserve not to raise interest rates, arguing that the US economy is facing an energy supply shock linked to the US-led conflict with Iran. He said the central bank should keep an open mind and avoid reacting too aggressively to what he described as noisy inflation data. The comments add a fresh political signal ahead of the Fed's next policy meeting in December.

Bessent made the remarks in an interview on CNBC on Friday, saying the Fed should understand that the current pressure is being driven by energy markets rather than a broad weakening in the economy. He said the underlying US economy remains strong, but warned against hiking too much while the shock is still working through prices. The Federal Reserve left rates unchanged at its latest meeting, keeping them in a range of 3.75% to 4.00%.

Market pricing still points in the opposite direction. CME FedWatch, which tracks expectations for monetary policy, puts the chance of a December rate increase at 89.4%, with traders expecting a move to 4.00% to 4.25% at the next meeting on 9 December. The latest US jobs report also showed the economy added 165,000 jobs in October, a result that could support the case for tighter policy.

Bessent said he was not telling the Fed what to do, but argued that a dramatic reversal would not be the right response to an energy shock. The dispute matters because it sits at the intersection of monetary policy, inflation and a wider geopolitical conflict. Energy prices have been a key channel through which the war has affected the US economy, and by September they were up 20.4% year on year.

That has complicated the Fed's task as it tries to balance inflation risks against signs of resilience in the labour market. The remarks also come as the White House continues to press for lower borrowing costs, while some Fed officials are signalling the opposite. The Fed has kept rates steady five times since the conflict began, and raised them once over the same period, according to the report.

Bessent also noted that the central bank cut rates three times over the same period last year, underscoring how sharply the policy debate has shifted. The article said October energy price data has been released, but the Labour Department could not collect data in October 2025 because of last year's government shutdown, leaving no year-on-year comparison for October 2026. That makes the current inflation picture harder to read and gives added weight to the Fed's next decision.

What remains unclear is whether the central bank will follow market expectations or heed warnings that the economy is being distorted by an external energy shock. The next scheduled policy meeting is on 9 December, and officials will have to weigh inflation data, labour-market strength and the continuing effects of the conflict. Bessent's comments are unlikely to settle the debate, but they sharpen the political pressure around the decision.

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