A September Fed hike would be the first in three years and would represent a complete inversion of the rate path markets had priced coming into 2026. The Greenspan 1997 analogy Bessent reached for unprompted is the most tradeable signal in this story: a single tap-the-brakes move followed by cuts is a very specific template that aligns with the median dot plot projection of one hike in 2026 and one cut in 2027, and Bessent floating it without being asked suggests it reflects deliberate communication rather than an offhand remark.
For bond markets, the combination of a Treasury secretary signalling comfort with a hike, a Fed chair described as tough talking on inflation, and a president who paradoxically keeps calling for lower rates while saying he has every confidence in Warsh creates an unusually complex communication backdrop that will keep rate volatility elevated into the September meeting.
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Treasury Secretary Bessent’s unprompted reference to Greenspan’s 1997 single rate hike has been read by Renaissance Macro’s Neil Dutta as a green light for Fed Chair Warsh to raise rates in September.
Summary:
- Renaissance Macro head of economic research Neil Dutta said Treasury Secretary Bessent’s speech to business leaders in New York on Tuesday gave Fed Chair Warsh a green light to hike interest rates, per Dutta’s assessment reported by MarketWatch (gated)
- Bessent told the audience that Warsh will optimise the path for inflation and economic growth and will be independent and do what he wants, and on CNBC Wednesday said Warsh came out tough talking about inflation, per his remarks
- Without being prompted, Bessent spoke favourably of former Fed Chair Alan Greenspan’s 1997 single tap-on-the-brakes rate hike, which did not slow the expansion and was followed by three cuts, per MarketWatch
- The median Fed official in last week’s dot plot projected one rate hike by end-2026 and one cut in 2027, aligning with the Greenspan template Bessent described, per the Federal Reserve
- Dutta expects the Fed to raise rates in September, which would be the first hike in three years, per Renaissance Macro
- Trump said he has every confidence in Warsh and expects him to do what is best, while separately repeating criticism of outgoing Fed Chair Powell for not cutting rates more quickly, per his remarks to reporters
Treasury Secretary Scott Bessent has handed Fed Chair Kevin Warsh what one prominent Wall Street analyst is calling a green light to raise interest rates, after an unprompted reference to Alan Greenspan’s single 1997 rate hike was read as deliberate political signalling rather than historical colour.
Speaking to business leaders in New York on Tuesday night, Bessent said Warsh will optimise the path for inflation and economic growth and will be independent and do what he wants. On CNBC the following morning he added that Warsh came out tough talking about inflation and that Trump has every confidence in the chair he chose to replace Jerome Powell.
The Greenspan reference is the detail that caught markets’ attention. Without being asked, Bessent described the former Fed chair’s 1997 decision to deliver one tap-on-the-brakes rate hike that did not derail the economic expansion and was subsequently followed by three cuts, a template that maps precisely onto the Fed’s own dot plot released last week, which shows the median official pencilling in one hike by end-2026 and one cut in 2027.
Renaissance Macro’s Neil Dutta said after the speech that he came away with the clear impression Bessent had given Warsh permission to move, and expects the Fed to act in September. That would be the first rate increase in three years. Bessent separately forecast US economic growth of 3% this year and said inflation will ease as the Iran deal takes hold, while noting that Trump has a healthy respect for bond market discipline.
Kevin Warsh
