Higher borrowing costs could soon hit American households again, even as families struggle with pump prices driven by military strikes in the Middle East. Treasury Secretary Scott Bessent is pleading with the Federal Reserve to hold off on interest rate hikes, arguing that temporary spikes in oil should not dictate long-term monetary policy.
Speaking on CNBC, Bessent made clear that the central bank risks choking off growth by reacting to volatile oil markets rather than fundamentals. The confrontation sets up an intense policy clash between the White House and central bankers ahead of their final rate-setting session of the year.
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If the central bank pushes borrowing costs higher in December, everyday loans from credit cards to mortgages will become more expensive. That would squeeze consumers who are already absorbing the fallout of the war with Iran.
Bessent Warns Against Interest Rate Hikes
Bessent argued that the central bank must distinguish between temporary price shocks and underlying economic strength. He pointed out that while energy costs spiked after military actions began, those figures are already showing signs of easing.
“So I think that to hike too much into an energy supply shock when it’s coming down, these are very noisy numbers,” he said. “The Fed’s supposed to look into the future, not look in the rearview mirror.”
The Treasury secretary stressed that the broader domestic economy remains resilient. Because of that underlying health, he contends policymakers should not overreact to swings caused by overseas conflict.
“I’m not going to tell the Fed what to do,” Bessent added. “I am going to say they should have an open mind.”
The Standoff Over Inflation and Fuel Costs
Tensions between the White House and the central bank have simmered for months. The administration has repeatedly urged policymakers to cut borrowing costs, but the Fed has held firm to contain inflation stoked by the US-Israeli war on Iran.
Since that conflict erupted, the Fed has maintained its benchmark rate five times and raised it once. The key lending rate currently sits in a target range of 3.75 to 4 percent.
Energy markets explain much of the central bank’s hesitation. By September, energy costs had jumped 20.4 percent compared to the previous year. Measuring the exact pace of price increases has grown complicated because the Labour Department could not gather data during the October 2025 government shutdown, leaving economists without an official year-over-year baseline for October 2026.
Drivers still feel the pinch whenever they fill their tanks. Here is how current fuel costs compare to earlier points in the conflict:
- $2.98 per gallon on February 28, when initial strikes hit Iran
- $4.34 per gallon recorded one month ago
- $3.87 per gallon at pumps today
While fuel has retreated from its peak, drivers still pay nearly a dollar more per gallon than when the war began.
Diverging Paths Inside the Central Bank
Bessent also noted a sharp policy reversal from last year, when officials delivered three rate cuts over the same calendar stretch. He cautioned that pivoting toward aggressive interest rate hikes now would ignore that recent trajectory.
“And now to reverse just based on an energy supply shock, a reversal in a dramatic way isn’t something that I would do if I were on the Fed,” Bessent said. “But I’m not on the Fed.”
Inside the Fed, influential policymakers are leaning the other way. Federal Reserve Governor Christopher Waller signalled during a London conference that he favours tighter policy after fresh economic reports showed stubborn price pressures.
Speaking at an event hosted by King’s Business School and the Money Macro and Finance Society, Waller set a clear line. He said he would support a quarter-point hike at the upcoming December meeting unless core consumer price index data came in below 0.3 percent.
Waller warned that if core inflation exceeded that threshold, a larger move of 50 basis points should be on the table. The Labour Department’s inflation report subsequently landed at a 0.4 percent monthly increase, blowing past his target.
Jobs Data Complicates the December Decision
A resilient labour market is giving inflation hawks extra ammunition. Employers added 165,000 jobs in October, surpassing Wall Street expectations and showing that businesses are still hiring despite higher borrowing costs.
Strong hiring usually encourages policymakers to keep rates elevated to prevent wages and prices from spiralling. Markets have responded by pricing in an imminent policy tightening.
According to the CME FedWatch tracker, investors assign an 89.4 percent probability that officials will lift rates into the 4.00 to 4.25 percent range next month. That expectation puts the central bank on a direct collision course with the Treasury.
Fed officials gather in Washington for their next policy vote on December 8 and 9, when they will decide whether to pull the trigger on higher borrowing costs.
Source: Al Jazeera
