US Treasury Secretary Scott Bessent says the economy is getting stronger, and he expects inflation and bond yields to fall once the Iran conflict ends. Bessent said the current rise in inflation and bond yields is largely linked to the energy shock caused by the war.
Bessent believes the energy shock from the Iran conflict is temporary. Bessent said headline inflation is around 3.5%, but underlying inflation is much lower. He said core inflation, which removes volatile food and energy prices, is about 2.3%.
He said energy prices should fall once the conflict ends, which could also bring inflation and longer-term bond yields lower.
Bessent also pointed to job growth as a sign that the US economy is strengthening. But economists disagree with Bessent on how strong the wage picture really is. This means workers’ pay is not keeping up with rising prices. Daco expects this income pressure to slow consumer spending. RSM chief economist Joe Brusuelas also agrees that the US economy strengthened during the third quarter. Cleveland Fed President Beth Hammack also pointed to strong economic growth. Signs that companies and the wider economy remain resilient are helping push expectations for stronger growth. Philadelphia Fed President Anna Paulson also sees a resilient US economy. Paulson pointed to strong consumer spending as one sign of economic strength.
He said about 1 million private-sector jobs have been created this year, while government employment has fallen by about 300,000 jobs. Gregory Daco, chief economist at EY, said average hourly earnings increased at an annualized rate of 3% in September, the slowest pace of the post-pandemic cycle. He said stock-market gains are still helping support overall consumer spending, but weaker household income could limit spending growth going into 2027, according to Yahoo Finance.
Because it supports real wage growth, he said private-sector job growth is important.
Bessent argued that the economy is only beginning to show stronger growth and that this could continue, according to Yahoo Finance. Daco said this would mark the sixth straight month of falling real wages. However, he does not believe inflation is easing enough and said higher prices are putting pressure on wages and household purchasing power. She said recent growth numbers have been solid and that company earnings and profits have been coming in above expectations. Hammack said markets are starting to price in continued economic strength. She said the economy is showing signs of gaining momentum despite tariffs and higher oil prices. She also said investment linked to the artificial intelligence boom is supporting the economy, according to Yahoo Finance.
