Billionaire financier Scott Bessent sat in front of the powerful Senate Finance Committee on Thursday, January 16, for his confirmation hearing. After weeks of speculation and debate, President-elect Donald Trump selected the hedge fund manager to lead the Treasury Department for the next four years, receiving cheers from Wall Street. Watching Bessent spar with the likes of Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA), Trump may have been pleased with his pick to succeed Janet Yellen.
Trumponomics 2.0
Committee Republicans and Democrats centered their attention on two main subjects. The first was the 2017 Tax Cuts and Jobs Act (TCJA), which is set to expire by the end of the year. The second was the president-elect’s tariffs. Both policies received endorsements from the Key Square Group founder, as Bessent expressed optimism about what Trumponomics 2.0 can bring to the economy.
Indeed, in his opening remarks, Bessent vowed that a second Trump term could "unleash the American economy" from its current shackles of regulation and taxation:
“As President Trump has said, we will unleash the American economy by implementing pro-growth regulatory policies, reducing taxes, and unleashing American energy production. The breadth and depth of our capital markets along with predictable, pro-growth tax policy and smart updated regulation will continue to make America the most popular destination a world for starting, growing and taking public a business [sic]."
The hedge fund titan told lawmakers he came out from behind his desk to extend the TCJA, which he called "the single most important economic issue of the day." Bessent averred that not extending or renewing the Trump-era tax cuts would result in "an economic calamity" and cause "instability that falls on the middle and working class."
Despite Democratic senators' criticisms that the TCJA added trillions to the budget deficit and skewed heavily toward the rich, Bessent pointed out that the tax reform raised federal revenues and increased upper earners’ share of tax obligations. Additionally, Bessent said, the TCJA bolstered real (inflation-adjusted) incomes for low- and middle-income households. These remarks did not emanate from think tanks but rather from US government data.
Tariffs have been a controversial issue for both sides of the aisle. Although this has been a trade policy endorsed by both parties at one point or another, whether under President George W. Bush or President Barack Obama, Trump’s pursuits have come under fire. He has proposed universal tariffs of 10%-20% and up to 100% for all Chinese goods entering the United States. Bessent noted that the president-elect’s tariffs scheme could be organized into three categories: a tool to tackle unfair trade, a revenue generator, and a negotiating mechanism.
In an exchange with Sen. Ron Wyden (D-OR), Bessent shrugged off his claims that tariffs hurt workers and small businesses, purporting that the tactic boosts the US dollar, nudges consumer preferences, and forces foreign manufacturers to cut their prices. "I would respectfully disagree," Bessent said. "The history of tariffs and tariff theory – optimal tariff theory – does not support what you're saying."
The Fed, CBDCs, and Debt
Bessent, who advocated for a “shadow Fed Chair,” reiterated his support for Federal Reserve independence. This has been a contentious issue for market watchers as Trump thinks he should have a say in monetary policy decisions and has repeatedly lambasted incumbent Jerome Powell. Bessent both respects the central bank’s independence and thinks Trump should be allowed to offer input regarding interest rates.
When asked by Sen. Marsha Blackburn (R-TN) about his thoughts on the Treasury pursuing a central bank digital currency (CBDC), Bessent expressed pessimism that this is something America needs to do. “I see no reason for the US to have a central bank digital currency. In my mind, a central bank digital currency is for countries who have no other investment alternatives,” Bessent said. This mirrors what the president-elect has previously said, vowing not to back a digital dollar because it is a “threat to freedom.”
In a less-fiery-than-expected exchange with Sen. Warren, Bessent revealed that he would be open to abolishing the debt ceiling. “Once President Trump takes office, and if I’m confirmed, if he wants to eliminate the debt limit, I will work with him and you on that,” Bessent stated.
Last month, when Congress was grappling over a continuing resolution bill, Trump espoused the need to either extend the debt ceiling until 2029 or remove it altogether. He went as far as promising to work with Democrats to get it done. Warren clarified at the confirmation hearing that she agreed with the president-elect.
Congratulations, Secretary Bessent
The odds are extremely high that Bessent will be confirmed as the next Treasury Secretary. While it is more than likely that Bessent will help ensure the TCJA is expanded and tariffs are imposed, the outcomes will be critical for the incoming administration. Bessent declared that none of the policies Trump has put forward are inflationary. He repeatedly stressed that the US must get its fiscal house in order and that renewing the TCJA will ignite immense growth.
A second round of Trumponomics has been promised to be an improvement from Bidenomics, though after four years of Biden, Trump has certainly been dealt a tough hand to play. Can he and his team make the best of it?
