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Upgrade to Premium Trump’s Treasury Pick Wants Shadow Fed Chair, Maybe Weak Dollar Trump’s Treasury Pick Wants Shadow Fed Chair, Maybe Weak Dollar · Bloomberg Jarrell Dillard and Stephanie Lai Sat, Nov 23, 2024, 6:00 AM 6 min read
(Bloomberg) — Scott Bessent, the veteran hedge fund manager who Donald Trump picked to become the next Treasury secretary, wants tariffs, a shadow chair for the Federal Reserve and maybe a weaker dollar.
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If confirmed by the Senate, he will have a sprawling remit: oversee public financing, economic sanctions and the Internal Revenue Service; engage in international economic diplomacy; and help ensure the smooth functioning of financial markets. Bessent, who currently runs macro hedge fund Key Square Group LP, will be crucial to implementing the president-elect’s agenda, which includes renewing some of Trump’s 2017 tax cuts that expire next year and loosening financial regulations.
Below is a roundup of what Bessent has said over the past year on policies that will influence the US economy.
Federal Reserve
Trump has said that a president should have some say over interest rates and monetary policy, a move that would undercut the longstanding independence the central bank has enjoyed from the executive branch. Bessent doesn’t seem to disagree with Trump, and even criticized the Fed himself in September after its jumbo rate cut.
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“If you were concerned about the integrity of the institution, you would not have done it. You especially would have not done a jumbo cut. In reputation, everything is optics … tell me on what planet is it conceivable that waiting two months is make or break, versus the integrity of the institution.” — Bloomberg News, Oct. 11
Bessent will also have a hand in helping Trump choose a replacement for Fed Chair Jerome Powell when his term expires in May 2026, and at least three other appointments to the board in the next four years. Trump has flirted with the idea of firing Powell before, but Bessent has floated a fresh idea.
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“You could do the earliest Fed nomination and create a shadow Fed chair. And based on the concept of forward guidance, no one is really going to care what Jerome Powell has to say anymore.” — Barron’s interview, Oct. 9.
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“If you believe forward guidance is good, why can’t you give forward guidance on who the Fed chair is going to be. You could do one of two things: The current Fed chair could be reappointed, so you’ve created a path there. Or the new Fed chair nominee would give forward guidance beyond the current Fed chair’s sell-by date.” — Bloomberg Radio on Oct. 11.
Tariffs
Trump has vowed to impose massive new tariffs, eyeing a duty of 10% to 20% on all foreign goods and 60% or higher on goods coming from China. On the campaign trail, he also made threats of even-higher rates on specific countries and products.
While Bessent has at times suggested that Trump is signaling a maximalist approach as a negotiation tactic, in an op-ed Nov. 15 for Fox News he signaled strong support for tariffs.
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“For too long, the conventional wisdom has rejected the use of tariffs as a tool of both economic and foreign policy. However, like Alexander Hamilton, we should not be afraid to use the power of tariffs to improve the livelihoods of American families and businesses.”
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“Tariffs are also a useful tool for achieving the president’s foreign policy objectives. Whether it is getting allies to spend more on their own defense, opening foreign markets to US exports, securing cooperation on ending illegal immigration and interdicting fentanyl trafficking, or deterring military aggression, tariffs can play a central role.”
Markets
Treasury secretaries have traditionally refrained from attributing market gains to the work of their bosses since that would mean taking the blame for a downturn — not to mention that the stock, currency and bond markets move for often unrelated, and even inexplicable, reasons. But when markets go up, Trump enjoys a boast. In a Nov. 11 op-ed in the Wall Street Journal under the headline “Markets Hail Trump’s Economics,” Bessent did the job for Trump.
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“Asset prices are fickle, and long-term economic performance is the ultimate measuring stick. But recent days prove markets’ unambiguous embrace of the Trump 2.0 economic vision. Markets are signaling expectations of higher growth, lower volatility and inflation, and a revitalized economy for all Americans.”
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“The rally in equities was particularly unusual given that interest rates also moved higher. The combination of the steepening yield curve, stable inflation expectations and the rise in stocks indicates that markets expect the Trump agenda to foster noninflationary growth that will drive private investment.”
Dollar Policy
It’s no secret that Trump likes the dollar’s role as the world’s reserve asset, and the accompanying economic and geopolitical power. But he also wants a weak enough foreign-exchange rate to buoy the US manufacturing sector. The dueling forces may become a pillar of his administration’s economic agenda, and as Treasury chief, Bessent will oversee US currency policy.
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“The reserve currency can go up and down based on the market. I believe that if you have good economic polices, you’re naturally going to have a strong dollar.” — Oct. 13 interview in Financial Times
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“It’s a market reaction and he understands that tariffs cause a stronger dollar, so a weaker dollar with tariffs is an economic abnormality. We could see what’s called the dollar smile. What we have now is high interest rates and high deficit and inflation above target. If you get inflation down … interest rates could come down, and you would have a market-based dollar depreciation. But in terms of an over-weak dollar policy, I wouldn’t expect that at all.” — Nov. 5 Bloomberg TV interview
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“Trump’s election drove the largest single-day increase in the US dollar in more than two years, and third largest in the last decade. This is a vote of confidence in US leadership internationally and in the dollar as the world’s reserve currency.” — Nov. 11 op-ed in the Wall Street Journal
Debt and Taxes
Bessent will also oversee management of the government’s nearly $29 trillion debt pile. He’s said Trump will aim to shrink federal budget deficits to 3% of gross domestic product, from roughly 6.2% at the end of the latest fiscal year.
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“I think we’re going to do it through deregulation, energy dominance and re-privatizing the economy … I think a priority is going to be turning off the [Inflation Reduction Act] … I don’t think anyone is going to have a problem with slowing down or cutting off this IRA.” — Nov. 6 interview with CNBC
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Issuing ultra long-term bonds “would have been a great idea,” Bessent said in a June 7 Bloomberg interview. “When rates are very low, you should extend duration,” he said. “I think it’s very unfortunate what Secretary Yellen’s doing. She’s financing at the front end, and she’s making a bet on the carry trade, which is not good risk management.”
Bessent will also play a key role shepherding the extension of Trump’s signature 2017 tax cuts, many of which are set to expire in 2025.
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“I’ve already been in conversations with a lot of the Republicans who will chair those committees and I can tell you in the Republican Congress, especially in the House, there’s a big appetite for pay-fors. So it will be a negotiation.” — Nov. 6 CNBC interview
–With assistance from Saleha Mohsin.
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