Bessents attempts to suppress interest rates could spark a recession

The bond market can be tricky for even its most sophisticated and well-armed participants.Just witness how Scott Bessent lately has attempted interventions to suppress interest rates — only to see them surge higher. Mind you, I say this as an observer who appreciates our Treasury secretary’s bids to save the US economy from a potential credit chokehold that could spark a recession.

He’s working for a debt-ridden nation that faces higher borrowing costs across the board.He also works for a president who has shown little internal fortitude to cut spending. When he took over last year, the former hedge funder’s plan was classic supply-side economics: tackle the anemic growth and inflation of the Biden years by cutting taxes and slashing regulatory curbs on economic activity like drilling that usually benefits consumers. But managing a $32 trillion economy with $40 trillion in debt isn’t simple.

Yes, inflation is lower than when Sleepy Joe and his equally inept Treasury Secretary Janet Yellen were running things.But the Iran conflict and its impact on oil and gas prices have been stoking inflation fears and causing rates to rise. Friday’s hot inflation number, my sources on Wall Street tells me, almost guarantees a Fed short-term “fed funds” rate hike later this month and probably one more later in the year. Already goosed by all of the above and Trump’s tariff agenda, longer-term rates controlled by traders lately have been climbing further because of the AI buildout.AI was supposed to be a no-lose proposition, adding to GDP and wage growth for blue collar workers.

Productivity gains were expected to suppress inflation and interest rates. Instead, AI’s downside is what we are experiencing now: Data centers need capital that is vying for investor attention, raising the US government’s borrowing costs as it’s forced to pay higher rates to compete for buyers. Meanwhile, there’s a lot riding on keeping interest rates stable.The midterms...