Bessent "assures Wall Street": U.S. Treasuries are fine, AI financing is not an issue, and another interest rate hike by the Federal Reserve will not cause any problems either.

U.S. Treasury Secretary Scott Bessent focused on addressing the market's concerns over multiple core risk points on Wednesday, sending a clear signal to investors shortly after the Federal Reserve announced it would keep interest rates unchanged: all major pressure points in the current U.S. economy and financial system are within controllable range.

According to reports from CNBC and Bloomberg on October 28, on the issue of AI financing risks, Bessent explicitly stated that "we do not see this as a problem at all", pointing out that new cloud computing companies (neoclouds) account for a limited share of the overall AI ecosystem, and financing and transactions are still advancing continuously.

On the Federal Reserve policy, he rarely stated that if the Fed raises interest rates again in the future, it "does not necessarily mean a policy mistake", and at the same time reaffirmed his high trust in Fed Chairman Kevin Warsh. On the issue of U.S. Treasury yields, he attributed the currently high 10-year Treasury yield partly to the Fed's decision to cut interest rates before the 2024 general election, and implied that as the Iran conflict calms down and energy prices fall, inflation pressure is expected to ease, and borrowing costs will decline accordingly.

The above remarks came against the backdrop of the market's high uncertainty over the AI debt bubble, persistently high U.S. Treasury yields and the Fed's policy path, and Bessent's concentrated remarks were interpreted by the market as a targeted "expectation management".

AI Financing Risks: The Treasury Department Is "Monitoring Closely" but Not Worried

Recently, the yields of some AI-related bonds have climbed to double digits, and the market's concerns about the AI infrastructure financing bubble continue to heat up. AI computing power provider CoreWeave has become the focus of the outside world's examination of the resilience of this boom cycle, and doubts about the sustainability of hundreds of billions of dollars in lending scale keep emerging.

In response, Bessent said in an interview with CNBC that the Treasury Department is keeping close track of relevant financing situations, but he explicitly downplayed the market's concerns. "We are monitoring all these situations, but I do not see this as a problem at all," he said, "because we see that new cloud computing companies are only a small part of the overall ecosystem."

Bessent also pointed out that financing and transactions are still being implemented continuously, and specifically mentioned that Meta chose to raise funds through equity, which he regarded as proof of the market's self-regulation ability.

It is worth noting that a previous article on Wall Street CN reported that Tesla CEO Elon Musk warned last Sunday that more than 200 neocloud companies will face "small-fish-level death and consolidation". Bessent's remarks are in sharp contrast with this pessimistic judgment.

Fed Policy: Interest Rate Hike Is Not Necessarily a Mistake, Warsh Receives Double Endorsement

The Federal Reserve announced on Wednesday that it would keep interest rates unchanged, which is in line with general market expectations. This decision came only one month after the Fed's first interest rate hike in three years (in September), and federal funds futures traders generally expect the Fed to resume raising interest rates at the December meeting.

In this context, when Bessent was asked whether a future interest rate hike would constitute a monetary policy mistake, he gave a thought-provoking answer: "That is not necessarily the case." He cited strong economic growth as support, and reaffirmed that he hopes the Fed will maintain an "open mind" about the "temporary nature" of supply shocks to energy prices.

This stance creates a certain tension with Trump's long-standing position of calling for interest rate cuts. Trump previously kept putting pressure on former Fed Chairman Jerome Powell to lower interest rates. However, Bessent made it clear that both he and Trump believe Warsh has performed well and can strike a balance between full employment and price stability. "I think Chairman Warsh has had a very good start, and I have full confidence in him," he said.

U.S. Treasury Yields: Pre-2024 General Election Interest Rate Cuts "Planted Hidden Dangers", Energy Is the Key Variable

Although the U.S. 10-year Treasury yield has fallen back from a more than 20-year high in recent weeks, it still remains above 5%. Bessent directly linked this situation to the Fed's decision to cut interest rates before the 2024 general election, implying that the interest rate cut operation starting with 50 basis points at that time had a far-reaching impact on the trend of long-end interest rates.

"The 10-year yield never looked back after that," he said, "I have always held high respect for the bond market. Just as Chairman Warsh said in the July resolution, the bond market has done a lot of tightening work for us."

On the prospects of inflation and borrowing costs, Bessent regards energy prices as the core variable. He said that the conflict between the United States and Iran has led to a sharp decline in global crude oil production, pushing inflation further away from the Fed's 2% target. But he also emphasized that once the United States "gets to the other side of the Iran conflict", the oil market will restore sufficient supply, which will help ease inflation and push down borrowing costs.

He also revealed that the U.S. operation to isolate the Iranian economy — codenamed "Operation Economic Outcast" — has achieved "very remarkable results", and internal estimates show that the Iranian economy could shrink by as much as 25% within a year.

In addition, Bessent said that the U.S. Q3 GDP data to be released on Thursday is expected to be "strong", but added that "I have not seen the specific figures yet". This statement provides macro-level support for his overall optimistic tone, and further reinforces the core message he conveyed to the market in this interview: the fundamentals of the U.S. economy are sound, and all current types of risks are within controllable range.

This article is from the WeChat official account "Wall Street CN", author: Dong Jing, published with authorization from 36Kr.