Treasury Secretary Scott Bessent, in an interview on Thursday, discussed the U.S. economy's outlook and rising tensions with China regarding artificial intelligence and rare earth minerals. Bessent commented following the release of the initial estimate for second quarter GDP growth, which slowed to 1.5% annualized from 2.1% in the first quarter. He explained that the GDP figure was 'very noisy' due to technical factors, such as releases from the Strategic Petroleum Reserve, and asserted that core GDP was 'actually quite strong.' Bessent highlighted robust manufacturing, jobs, and consumer activity, describing the GDP slowdown as a technical adjustment and expressing confidence that GDP will be 'substantially above 2% for the year' [1].
The June personal consumption expenditures (PCE) index, the Federal Reserve's preferred inflation gauge, showed inflation slowing to an annual rate of 3.7%, down from 4.1% in May. Core PCE also declined to 3.3% from 3.4% the prior month, though both measures remain above the Fed's 2% target. Bessent emphasized the importance of the downward trend in core and service inflation, noting that energy prices are volatile and expressing optimism that inflation will decrease further once geopolitical tensions, such as the Iran war, subside [1].
Bessent also addressed recent economic friction between the U.S. and China, particularly over AI development and rare earth mineral supplies. He described the relationship between President Trump and Xi Jinping as positive at the leadership level but warned that China has 'done a lot of kicking lately' beneath the surface. Bessent stated that the U.S. has raised concerns about restricted rare earth flows and detrimental measures affecting U.S. businesses, indicating that the U.S. will 'push back' if these issues persist. He also expressed concern about Chinese AI practices, specifically the 'large-scale distillation' of American AI models, and stressed the need for legal open-source practices to prevent intellectual property theft [1].
CONCLUSION
Treasury Secretary Bessent projects stronger U.S. economic growth and declining inflation, despite technical adjustments in recent GDP data. He also signals heightened vigilance and potential action regarding ongoing tensions with China over AI and rare earths, which could have medium-term market implications.