US Treasury warns against rate hikes during US-Iran war energy ‘shock’

US Treasury Secretary Scott Bessent has called on the Federal Reserve not to hike interest rates because of an "energy supply shock" tied to the US-led conflict with Iran.

"I think the Fed should understand that this is an energy supply shock," while the underlying US economy is very strong, Bessent said in an interview on CNBC on Friday.

"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 central bank opted to maintain interest rates during its last policy meeting, leaving them at 3.75 to 4 percent. CME FedWatch, which tracks the likelihood of monetary policy decisions, forecasts an 89.4 percent chance that rates will be raised to 4.00–4.25 percent at the next meeting, scheduled for December 9.

Despite pressure from the White House to cut interest rates, the Federal Reserve has held them steady amid inflationary pressures stemming from the US-Israeli war on Iran. Since the conflict began, the Fed has maintained rates five times and raised them once.

Much of that pressure has come from rising energy prices. By September, energy prices had climbed 20.4 percent year over year. Although October's energy price data has since been released, the Labour Department was unable to collect data in October 2025 because of last year's government shutdown. As a result, it cannot provide a year-over-year comparison for October 2026.

Bessent's remarks come amid a stronger-than-expected US jobs report, which bolsters the case for rate hikes. The US economy added 165,000 jobs in October, according to the Labour Department's release last Friday.

"I'm not going to tell the Fed what to do. I am going to say they should have an open mind," Bessent said.

The Fed made three rate cuts over the same period last year, he noted.

"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. But I'm not on the Fed."

Feeling the cost

Bessent's remarks come as some top Fed officials are pushing for the opposite. On Tuesday, Fed Governor Christopher Waller said he planned to support a quarter-point increase at the Fed's December 8-9 meeting unless the core consumer price index — one of the central bank's key measures for assessing the rate of inflation — came in at 0.3 percent or more.

"In that case, I believe a 50-basis-point hike in the policy rate should be considered at the December meeting," he said at a conference in London hosted by King's Business School and the Money Macro and Finance Society.

The CPI report subsequently came out, showing a 0.4 percent monthly increase.

Consumers are feeling the rising costs at the petrol pump, as prices are declining but remain high. The average price for a gallon of petrol is $3.87 ($1.02 per litre), down from $4.34 ($1.14 per litre) this time a month ago, but still well above the $2.98 ($0.79 per litre) price recorded on February 28, when the US and Israel first struck Iran.