MediumIV Macro Policy & Sovereign Debt27 September 2026, Sunday
Bessent urges Fed flexibility on rates, citing AI productivity
US Treasury Secretary Scott Bessent said on Fox News on 27 September that the Fed should keep an open mind on interest rates. Bessent argued that productivity gains from AI and deregulation will contain inflation; the Fed raised rates to a 3.75–4.00% range on 16 September.
According to a Bloomberg report published in the Spokesman-Review, Bessent said on the Sunday Morning Futures programme on 27 September that core inflation has been subdued and has eased in recent months. The same report said data released on 11 September showed core consumer prices rose 0.3% month on month and 2.4% year on year in August. Bessent cited the internet boom of the 1990s, when the Fed gave growth room to run. According to Investinglive, Bessent also said the last delivery of about 15 million barrels of Iranian oil bound for China would be completed within 2 weeks.
The call came in a week when borrowing costs rose sharply. According to Mortgage Daily, the US 10-year Treasury yield closed at 5.17% on 25 September; the 30-year fixed mortgage rate hit a 52-week high of 7.24% on 24 September, up 0.58 points in 30 days. According to the same source, August PCE data is due on 30 September and the employment report on 2 October; the previous core PCE reading, the Fed's preferred price measure, was 3.3%. The sources do not explain the gap between 2.4% core CPI and 3.3% core PCE.
According to the Spokesman, petrol and diesel prices, driven higher by the Iran war and Ukraine's attacks on Russian energy infrastructure, are weighing on voters ahead of the November 2026 midterms. According to Mortgage Daily, the Fed's next meeting is on 28 October.
Talay assessment
Bottom line
Bessent's call shows the administration has begun building public pressure against a possible second hike in October. But with the 10-year yield at 5.17% and the mortgage rate at 7.24%, the Fed's decision will be set by the 30 September PCE and 2 October employment data; a high PCE reading would weaken Bessent's productivity argument.
Likely effects
- Perceived Fed independenceNegative1–6 months
The Treasury's open call on the direction of rates keeps alive the market's question about how sensitive Fed decisions are to political pressure, creating upside risk to the term premium.
- US housing marketNegativeWeeks
With the 30-year mortgage rate at a 52-week high of 7.24%, housing demand is being squeezed ahead of the midterms.
- TürkiyeNegative1–6 months
US yields holding above 5% keep borrowing costs high for emerging economies that depend on external financing, such as Türkiye.
Possibilities, ranked
- 1Fed looks at the data55%
Despite Bessent's call, the Fed ties its October decision to PCE and employment data; strong data brings a second hike.
Watch: August core PCE data due on 30 September
- 2Fed chooses to wait30%
Weak employment and slowing core prices push the Fed to hold on 28 October.
Watch: Non-farm payrolls and the unemployment rate in the 2 October employment report
- 3Political pressure escalates15%
The administration sharpens its criticism of the Fed ahead of the midterms, and the term premium in yields rises.
Watch: The US 10-year yield moving above 5.17%
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- US 10-year yield (25 Sep)▼ 5.17%
- 30-year mortgage rate▼ 7.24%
- Core CPI (August, annual)▲ 2.4%
Historical context
US 10-year yield, last 6 months
- 117/09 · Fed dot plot median for 2026 rises to 4.00-4.25% while the 10-year yield eases from 5.04% to 4.94%
- 221/09 · The Fed's Goolsbee: if inflation is coming from demand, the rate response will be sharper and front-loaded
- 323/09 · US Treasury sells $70 billion of 5-year notes at 5.033%; after hot PMIs the 10-year yield hits 5.10%, its highest since 2007
- 424/09 · India's Sensex falls 1,247.71 points to 73,580; rupee presses against the 96 threshold as Brent tops $102 and the US 10-year yield exceeds 5.11%
- 524/09 · US Treasury sells 44 billion dollars of 7-year notes at 5.085%: highest yield since April 1993 as indirect demand falls to 57.2%
- 624/09 · No joint statement at Xi–Trump summit: tariff truce extended by just 2 months from 10 November to 10 January, no new decisions on chips or rare earths
- 725/09 · Michigan consumer sentiment at a 4-month low of 48.1, 1-year inflation expectations jump to 4.6%; US 30-year yield rises to 5.50%