Bessent sees 'substantial disinflation' ahead as Warsh takes over the Fed

• April inflation data showed consumer prices rose 0.6% monthly with 12-month inflation at 3.8%, while producer prices jumped 1.4% to reach 6% year-over-year, the highest since late 2022
• Bessent distinguishes current inflation from the 2021-22 surge, citing temporary supply shocks from Iran conflict rather than pandemic-era demand imbalances and monetary stimulus
• Kevin Warsh will become Fed Chair as Powell's term ends Friday, with Bessent expressing optimism that energy inflation will decline as the U.S. increases oil production

Summary: Bessent Forecasts Disinflation as Warsh Assumes Fed Leadership

Treasury Secretary Scott Bessent predicts "substantial disinflation" after one or two more hot inflation readings, despite recent troubling inflation data. Speaking from meetings with Chinese counterpart Xi Jinping, Bessent attributes current price pressures to supply shocks from the Iran war, expressing confidence that increased U.S. oil production will ease these concerns.

Key Inflation Data:

• Consumer prices jumped 0.6% in April (0.4% core, excluding food and energy)
• Twelve-month inflation stands at 3.8% headline, 2.8% core
• Producer prices soared 1.4%, with 12-month levels hitting 6%—the highest since late 2022
• Import and export prices reached four-year highs

Main Argument:

Bessent distinguishes current inflation from the 2021-22 surge, which followed COVID-related fiscal/monetary stimulus and Russia's Ukraine invasion. He emphasizes that "nothing is more transient than a supply shock" and notes core inflation was declining before the Iranian conflict began.

Leadership Transition:

Kevin Warsh begins as Federal Reserve Chair after Jerome Powell's term ends Friday, marking the start of the "Warsh Fed." This timing coincides with Bessent's optimistic inflation outlook.

Market Context:

Fed officials previously faced criticism for labeling 2021 inflation as "transitory," allowing prices to exceed 9%. Bessent stresses he "was never on team transitory during Covid" and expects energy inflation to decline within "a few days or a few weeks."

The Treasury Secretary's comments suggest administration confidence that current inflationary pressures will prove temporary, banking on increased oil supply to stabilize prices as new Fed leadership takes control.