Treasury Secretary Scott Bessent said Thursday that the economy is poised to strengthen in coming months and that underlying inflation pressures are easing, while he cautioned about intensifying U.S.-China tensions over rare earths and artificial intelligence. He made the remarks to FOX Business' Edward Lawrence after the government released its first estimate of second-quarter GDP.
Bessent described the 1.5% annualized growth figure as "very noisy" and said much of the weakness was driven by technical factors, including the release of oil from the Strategic Petroleum Reserve, which subtracts from GDP. "Core GDP was actually quite strong," he said.
Government data showed the economy grew at a 1.5% annualized rate last quarter, down from 2.1%, a slowdown Bessent called mostly technical.
The same day brought the release of June's personal consumption expenditures index, the Federal Reserve's preferred inflation gauge.
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Both the headline and core PCE readings remain well above the Fed's 2% target. The GDP report covers April through June, while the PCE figures reflect spending and prices in June, the last month of that quarter.
Bessent said the data showed core inflation and service inflation are declining. "Energy can be volatile," he added. "We'll get to the other side of the Iran war, and you know it will come down."
Bessent also discussed friction with Beijing over rare-earth minerals and AI. He described the relationship as a "water polo match." "Sometimes I describe it as a water polo match where our leaders could be hitting the ball back and forth, but under the water, the Chinese seem to have done a lot of kicking lately. And you know, if we have to, we'll kick back," the Treasury secretary explained.
"We expressed our concern that the rare earths are not flowing as freely as they could, that they have taken some measures that are detrimental to U.S. businesses," Bessent said.
He also said the U.S. has raised concerns about Chinese AI "large-scale distillation" of American AI models, adding that "we like open source, but open source has got to be legal - it's not an excuse for IP theft." Asked if U.S. officials had flagged to Beijing that Chinese systems appeared to incorporate traits from American AI output, Bessent said, "Well, we've done that at the staff level, and the good news is we are ahead of the Chinese in AI, I believe by a substantial amount, and they are number two."
Bessent said the two countries need to have conversations because "we want to make sure that non-state actors do not get a hold of a powerful model, that everyone increases their resiliency and that we cooperate towards those goals."
Donald Trump has invited Chinese President Xi Jinping to visit the U.S. capital around the end of September, following their meeting in the spring. The invitation sets up another possible venue for dialogue on the tensions Bessent described.
These numbers land as investors weigh the Federal Reserve's likely path on interest rates. His warnings on China also highlight risks for markets tied to rare-earth supply chains and AI competition.
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