Treasury Secretary Scott Bessent said in an interview on Thursday that he expects economic growth to pick up later this year with core inflation trending lower, while he warned that there have been growing tensions with China over artificial intelligence and rare earths.
Bessent spoke with FOX Business' Edward Lawrence following Thursday's release of the initial estimate of second quarter GDP growth, which showed GDP slowed to 1.5% annualized growth from 2.1% in the first quarter.
The Treasury secretary said that the GDP "number is very noisy because a lot of that was very technical," explaining that releases from the Strategic Petroleum Reserve to ease energy prices came out of GDP and that "core GDP was actually quite strong."
"We're seeing manufacturing is doing well, the jobs numbers are strong, the consumer is strong. So it was a technical adjustment in the number, I wouldn't worry about it," Bessent said, adding that he thinks GDP is "going to be substantially above 2% for the year."
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Thursday also saw the release of the June personal consumption expenditures (PCE) index which showed the Federal Reserve's preferred inflation gauge slowed to an annual rate of 3.7% last month, down from 4.1% in May.
Core PCE, which excludes volatile food and energy prices, also declined to 3.3% from 3.4% the prior month. Both measures remain well above the Fed's 2% target.
Bessent said that he sees the trend in core inflation as important, saying the report showed it and service inflation declining.
"Energy can be volatile," Bessent added, saying that "we'll get to the other side of the Iran war, and you know it will come down."
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The Treasury secretary was also asked about recent economic friction between the U.S. and China over issues like AI development and supplies of rare earth minerals that are used in advanced tech and military hardware.
"The good thing is the overall relationship comes down from the top, and President Trump, Xi Jinping have a very good relationship. But, you know, that's not an excuse for them to do things underneath the surface," Bessent said.
"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. And we said that if this continues, we will push back," he added.
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Bessent said that "we expressed our concern over Chinese AI that there is large-scale distillation" of American AI models that are making their way back into the U.S., adding that "we like open source, but open source has got to be legal – it's not an excuse for IP theft."
Lawrence asked Bessent if the Trump administration has raised the issue of U.S. tech companies' AI model watermarks appearing in Chinese models.
"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.
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He added that the two superpowers do 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."