Trump nominated Bessant as Treasury Secretary. What does this new CFO mean for the US economy?
If Bessant is successfully elected, with Trump's tariff plan, major tax bills and another debt ceiling coming in 2025, Bessant will become a key economic spokesperson. Preston Caldwell, senior US economist at Morningstar, said that the indirect power of the Treasury Secretary to influence fiscal and economic policies may be more important than his direct power.
First of all, in terms of tariffs, Stephen Myrow, managing partner of Beacon Policy Advisors, said that Bessant's credibility in the financial market can help the government convince investors to increase tariffs, even if these costs will be passed on. Tariffs will cost consumers, and the question is how much.
Secondly, a bigger question for Bessant and Trump is how much they are prepared to increase the national debt, which is now $36 trillion. Investors regard Bessant as a "fiscal hawk" who has previously warned against excessively expanding the budget deficit.
In addition, Bessant will also play an important role in interest rate adjustments, cryptocurrencies and many other aspects.
Tax cuts: Watch Bessent speak at the hearing
Starting with taxes, Bessent will take over the position next year, and Trump's 2017 tax cut bill will expire. According to estimates by the Tax Foundation, the bill will be fully invalid in 2026, and 62% of households will face tax increases. The Congressional Budget Office said that a direct extension of the existing bill could increase the deficit by more than $4 trillion.
The new tax law will depend on Congress and Trump, but Idaho Republican Senator Mike Crapo, the incoming chairman of the Senate Finance Committee, said Bessent will be the White House's "key economic negotiator" and he looks forward to the confirmation hearing. Regarding specific tax policies, it may take until the hearing to know exactly what Bessent thinks.
Little impact on interest rates
Bessent will be cautious on consumer borrowing costs, but analysts say there is a limit to what he can do.
Cris DeRitis, deputy chief economist at Moody's Analytics, said the Federal Reserve's federal funds rate sets the benchmark for short-term interest rates, including the floating annual interest rate on credit cards. But he pointed out that U.S. Treasury yields set the benchmark for long-term credit such as mortgages, auto loans and federal student loans. They also affect the interest rates banks pay on long-term certificates of deposit (CDs).
Treasury yields have been rising since mid-September, and mortgage rates are starting to approach 7% even as the Federal Reserve has begun to cut its benchmark rate. Investors are concerned about the inflation that could come from Trump's tariffs, further tax cuts and mass deportations of undocumented immigrants.
DeRitis said Bessant's means of adjusting interest rates is to adjust the mix of short-term and long-term debt used to finance the federal deficit. But in the massive $27 trillion Treasury market, this is a tricky supply and demand issue.
Caldwell said that by adjusting the maturity mix of bonds issued, Bessant could theoretically change the shape of the yield curve. But this is likely to have little impact, and if the Fed wants to, it can easily offset it by adjusting its long-term asset portfolio, which is also a major buyer and seller of Treasury bonds.
Previously, Bessant criticized current Treasury Secretary Janet Yellen for distorting the Treasury market by borrowing more than $1 trillion in short-term debt that is more expensive than historical standards.
Analysts believe that the question is to what extent the Trump administration can use Bessant's credibility to prevent adverse reactions in the bond market, and Bessant's background slightly reduces this risk.
"Extraordinary" measures play an important role in resolving the U.S. debt ceiling and crypto regulation
In addition, there is the issue of the U.S. debt ceiling. Henrietta Treyz, managing partner of Veda Partners, expects the debt ceiling to be raised again around July next year, and the Republican plan may be to link the debt ceiling increase to the passage of the tax bill.
Treyz said that if these issues are interrelated, Bessant and the Treasury Department may need to take "extraordinary" measures to buy some time for lawmakers to postpone the default date. DeRitis said that extraordinary measures essentially allow the Treasury Department to strategically ease certain expenditures to slow the government's approach to the borrowing ceiling.
As cryptocurrencies become more and more important, Bessant will also play an important role in regulating the industry.
Andrew O'Neill, managing director of digital assets at S&P Global Ratings, said that the new Treasury Secretary, as a maker of government financial regulatory policies, may be helpful to cryptocurrency companies, which may be particularly important for stablecoins or cryptocurrencies pegged to the US dollar.