Bessent Predicts Substantial Disinflation as Warsh Takes Over Fed

• April inflation data showed troubling trends: consumer prices jumped 0.6% monthly (3.8% annually), while producer prices soared 1.4% (6% annually, highest since late 2022)
• Bessent distinguishes current inflation from 2021-22 surge, rejecting 'transitory' label used then, saying energy inflation will decline as U.S. continues oil production to offset Iran war supply shock
• Kevin Warsh begins his tenure as Fed chair Friday after Jerome Powell's term ends, inheriting an inflation challenge with core inflation still at 2.8% annually

Summary: Bessent Forecasts Disinflation as Warsh Assumes Fed Leadership

Treasury Secretary Scott Bessent predicts "substantial disinflation" is imminent despite persistently elevated inflation readings, timing his optimism with Kevin Warsh's assumption of the Federal Reserve chair role following Jerome Powell's term ending Friday.

Key Inflation Data

Recent figures paint a challenging picture:

• Consumer prices jumped 0.6% in April (0.4% core excluding food/energy)
• 12-month inflation stands at 3.8% headline, 2.8% core
• Pipeline pressures soared 1.4% monthly, reaching 6% annually—highest since late 2022
• Import/export prices hit approximately four-year highs

Bessent's Outlook

The Treasury Secretary expects one or two more "hot inflation numbers" before significant easing begins. He attributes current pressures to supply shocks, particularly energy-related disruptions from the Iran conflict, which he characterizes as transient. Bessent emphasized the U.S. will "keep pumping" oil to alleviate supply constraints, noting that core inflation was declining before the Iranian conflict.

Market Context

Bessent distinguished current conditions from the 2021-22 inflation surge that followed COVID-19 stimulus and the Russia-Ukraine war, when Fed officials were criticized for dismissing price increases as "transitory" while inflation exceeded 9%. He stated he was "never on team transitory during Covid" but believes energy inflation will normalize within "days or weeks."

Leadership Transition

The forecast coincides with the "Warsh Fed" era beginning as Kevin Warsh takes over Federal Reserve leadership, potentially signaling a new approach to monetary policy amid ongoing inflation challenges.