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

Despite Treasury Secretary Scott Bessent's remarks, financial tracker CME Fed Watch forecasts an 89.4 percent chance that rates will be raised to 4.00-4.25 percent at the Fed's next meeting on December 9. The central bank has maintained rates between 3.75 to 4 percent during its last policy meeting.

Bessent 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," he said in a CNBC interview on Friday.

Inflationary pressures

Despite pressure from the White House to cut interest rates, the Federal Reserve has held them steady amid inflationary pressures 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. The Labor Department was unable to collect data in October 2025 due to last year's government shutdown, preventing 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 Labor Department's release last Friday.

Fed divided on policy

Bessent acknowledged the Fed's independence: "I'm not going to tell the Fed what to do. I am going to say they should have an open mind." He noted the Fed made three rate cuts over the same period last year, but to reverse just based on an energy supply shock... isn't something that I would do if I were on the Fed.

Some top Fed officials are pushing for the opposite. Fed Governor Christopher Waller said he planned to support a quarter-point increase at the December 8-9 meeting unless the core consumer price index 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," he said at a conference in London.

The CPI report subsequently showed a 0.4 percent monthly increase, potentially supporting Waller's position. Consumers continue to feel rising costs at the petrol pump, with the average price at $3.87 per gallon ($1.02 per liter), down from $4.34 a month ago but still above $2.98 recorded when the US and Israel first struck Iran.