By David Lawder and Susan Heavey
WASHINGTON, June 24 (Reuters) - U.S. Treasury Secretary Scott Bessent on Wednesday applauded Federal Reserve Chair Kevin Warsh's plan to reduce forward rate guidance, but said Fed policymakers need to keep an open mind on the inflation impact of the Iran conflict and productivity gains driven by artificial intelligence models.
Bessent, in an interview with CNBC, also backed Warsh's decision not to submit an interest-rate path projection - known as the "dot plot" - as part
of quarterly economic projections.
"I don't think anyone should do dot projections. The only reason I ever liked the dots was when I had my investment business, we had a trading model that actually traded against the dots, because the dots are always wrong," Bessent said.
After his first policy meeting last week, Warsh told reporters that he is convening a task force of Fed staff and outside experts to review the Fed's communications practices, including the dot plot that the Fed has published four times every year since 2012 to give the public a sense of where the central bank may be headed on rates. He has long criticized forward guidance, arguing that it locks policymakers into a specific rate path without due regard to changing economic data.
"I do applaud Chair Warsh's getting rid of forward guidance. I think that that is kind of a crutch that market participants have started leaning on," Bessent told CNBC, adding that he is continuing his tradition of a weekly breakfast with the central bank chief.
Half of policymakers submitting projections believe they will need to raise the Fed's policy rate this year, the dot plot showed last week.
But Bessent said that policymakers should keep an open mind about the inflationary effects of high energy prices caused by the Iran conflict, which are now abating amid negotiations as tankers are passing through the Strait of Hormuz more smoothly. He also said that AI-driven productivity gains will allow higher growth and disinflation back to the Fed's 2% target.
"I think we can have a high GDP economy without the traditional inflation seeping in," Bessent said. He repeated that he was confident that Warsh would carve the best path between the Fed's price-control and employment mandates and that President Donald Trump continues to publicly and privately express support for his Fed chair pick.
Turning to the dollar, Bessent said a stronger dollar was not necessarily dependent on higher interest rates.
"You can have a strong dollar when rates are being cut because the U.S. economy is accelerating," he said, adding a growing rate differential with weaker economies could strengthen the greenback.
"But mostly, I think we're going to have a strong dollar because our economy is pulling away from the rest of the world," Bessent said. "Look at the way our economy has performed during the Iranian conflict. The rest of the world has gone negative to zero."
(Reporting by Susan Heavey and David Lawder; Editing by Andrea Ricci )
