The initial reaction seems to be that billionaire Scott Bessent is a “markets guy”. Wall Street is reacting favourably with US futures gapping higher while bonds are also bid, dampening the dollar. So, why exactly are markets responding to Bessent in such a way? Let’s take a look.
Bessent has been a rather vocal guy, even after when Trump has won the election earlier this month. He is well known to be a fiscal hawk and that’s a good thing for debt and finances. That especially with plenty of scrutiny on the US deficit, so Bessent is a “safe choice” in that sense. And also for the economy I guess.
All that being said, we’ll have to wait and see if he will walk the talk when it comes to this.
On the tariffs front, there’s also some positive for risk sentiment as Bessent has previously said that he would prefer “tariffs be layered in gradually”. But he had recently made this remark on tariffs just two weeks ago:
“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.”
Adding that tariffs can play a “central role” in achieving Trump’s foreign policy objectives.
On the dollar, things are a bit trickier to read. Bessent has been noting about dollar strength in the last few weeks but keep in mind that Trump wants a weaker dollar. So, he might have to fall in line on that sooner rather than later. Prior to the election, he noted that “when have good economic polices, you’re naturally going to have a strong dollar”.
And after the election, he mentioned that:
“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.”
Besides that, he also did remark that tariffs will lead to a stronger dollar. Adding that a weaker currency in light of tariffs is an “economic abnormality”. However, he did go on to say that lower inflation and lower rates should see the dollar depreciate but that he doesn’t expect an “over-weak dollar policy”.
Other than that, perhaps the most intriguing commentary when it comes to Bessent is with regards to the Fed. He outright opposed the September rate cut in saying that:
“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. Tell me on what planet is it conceivable that waiting two months is make or break, versus the integrity of the institution.”
And he also floated the idea of a “shadow Fed chair” as he continued to voice his displeasure last month:
“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.”
Despite those comments though, I don’t think it will faze the Fed whatsoever. The central bank will continue to be focused on its dual mandate no matter what the administration might say or threaten.
At this stage, I think the Fed’s independence should be the least of his worries.
But yes, that will be a potential risk and volatility trigger for markets to be mindful of in case Bessent and Trump continues to be vocal about upcoming Fed policy decisions. As a reminder, Powell will stay on as Fed chair until May 2026 as per his current term.
This article was written by Justin Low at www.forexlive.com.
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