Treasury Secretary Scott Bessent Says U.S. Can Achieve 3% GDP Growth Without Reigniting Inflation

On CNBC’s Squawk Box, Treasury Secretary Scott Bessent argued that the U.S. economy can return to strong growth without driving prices higher with inflation. He pointed to Alan Greenspan’s 1990s playbook, where productivity gains let the economy run hot without inflation, and said that AI productivity gains, plus strong energy exports, are the modern equivalent. He went further, explaining that the AI boom could itself be disinflationary, helping pull inflation back to the Fed’s target and driving prices lower.

If Bessent is right, interest rates have room to drift lower as the Fed could continue easing if inflation stays low. If he is wrong and growth comes with another inflation wave, the 4-5% yields on cash today could rise, and long-duration bond buyers take the price hit.

The Productivity Story Is Real, But Inflation Is Still Here

Bessent’s framework rests on real economics. Productivity-driven growth genuinely does behave differently from demand-driven growth. When output per worker rises, a company can pay higher wages and sell more units without raising prices, because each hour of labor produces more stuff.

However, headline PCE ran near 4% year over year in April 2026, with core PCE around 3%. The Fed’s target is 2% year over year, and anything above 3% historically gets policymakers talking about rate hikes rather than cuts. Services inflation has been sticky in the 3.4% to 3.6% range all year, which is the wage-cost channel Bessent’s productivity argument has to overpower.

Bessent said GDP growth may have been running near 4% earlier in the year, slowed, and can return to “something with a three in front of it” by year-end. The actual print shows Q3 2025 at 4.4%, Q4 2025 at 0.5%, and Q1 2026 at 1.6%.

The 3-3-3 Framework Behind Bessent’s Outlook

Bessent’s framework is built on three targets: 3% GDP growth, 3 million barrel-per-day-equivalent energy exports, and a 3% deficit-to-GDP ratio. He claims the deficit-to-GDP ratio came down from 6.8% to roughly 5.4% for calendar year 2025 and expressed confidence that the Fed, under Chair Kevin Warsh, can satisfy both the inflation and growth mandates. He also said the U.S. has never produced or exported so much energy.

The importance of this is that 3% GDP growth with less than 3% inflation would mean real wages would rise. The deficit target matters because a smaller federal deficit means less new Treasury supply, which, over time, supports lower long-term yields. The 10-year Treasury yield is about 4.5%, near the top of its 12-month range. If the deficit story plays out, that yield has room to ease, and so do 30-year mortgage rates that price off it.

One Inflation Metric Will Make or Break Bessent’s Thesis

The single factor that determines whether Bessent’s thesis survives contact with reality is services inflation, specifically the wage component. Goods inflation can be tamed by cheaper imports and AI-driven efficiency. Services inflation cannot, because services are mostly labor.

Unemployment sits at 4.3% as of May 2026, in the healthy 4% to 5% range. If productivity rises faster than wages, service prices can cool while paychecks still grow. If wages outrun productivity, services inflation sticks at 3%+ and the Fed has to choose between Bessent’s growth target and its 2% mandate. The Fed Funds upper bound is 3.75%, after three cuts in late 2025, and has held there for six months. That pause tells you policymakers are not yet convinced the inflation fight is finished.

Key Takeaways

Bessent’s argument ultimately rests on the idea that productivity growth can allow the economy to expand faster without generating the inflation that normally accompanies strong growth. It is the same dynamic that helped power the U.S. economy during the 1990s, and he believes AI and energy production can play a similar role today.

The challenge is that the data looks promising, but it has not yet been fully validated. Inflation remains above the Fed’s target, services prices continue to run hot, and economic growth has been uneven from quarter to quarter. If productivity gains begin showing up in the inflation data, Bessent’s vision of stronger growth and lower interest rates becomes much more plausible.