President-elect Donald Trump's pick for Treasury secretary, Scott Bessent, said on Thursday that the dollar should remain the world's reserve currency, the Federal Reserve should stay independent and that he is ready to impose tougher sanctions on Russia's oil sector.
Bessent, testifying at a Senate Finance Committee confirmation hearing, underscored an urgent need to extend Trump's 2017 individual tax cuts, saying that allowing them to expire at the end of this year would unleash a $4 trillion tax hike that could crush the US economy.
"If we do not renew and extend, then we will be facing an economic calamity," Bessent said. "We will see a gigantic middle class tax increase."
Bessent, a hedge fund manager and founder of Key Square Capital Management, voiced support for Trump's plans to impose steep tariffs, saying they would combat unfair trade practices, raise revenues and increase US negotiating leverage, including on non-trade issues.
In prepared remarks he said pro-growth tax, investment, trade and energy policies would usher in a "a new economic golden age" of prosperity.
RUSSIAN OIL SANCTIONS
Bessent said that US sanctions against Russia's oil sector have been too weak, partly because the Biden administration was too concerned about increasing prices at the same time it was constraining US oil output. Increased US oil production would allow for tougher sanctions on Russian oil majors, he said.
"I think if any officials in the Russian Federation are watching this confirmation hearing, they should know that if I'm confirmed, and if President Trump requests as part of his strategy to end the Ukraine war, that I will be 100% on board with taking sanctions up - especially on the Russian oil majors - to levels that would bring the Russian Federation to the table," Bessent said.
He also had harsh words for China, calling it "the most imbalanced, unbalanced economy in the history of the world," one that was trying to export its way out of a "severe recession/depression" and the US could not allow China to flood US or world markets with cheap goods.
NO DRAMA
In a hearing marked by few testy exchanges, Bessent coolly fielded questions ranging from child tax credits to tariff impacts on farmers and did not stray from answers consistent with previous Republican Treasury nominees, but without contradicting Trump's policy plans.
He said that US spending on President Joe Biden's clean energy tax credit was "wildly out of control" and that high deficits in recent years were due to a "spending problem." Asked if a 100% tax credit for business research and development needed to be restored, he said his "inclination" would be to support that.
Democrats chided Bessent for taking advantage of a tax loophole, the legality of which has been disputed by the Internal Revenue Service, to reduce the Medicare taxes paid by his hedge fund by $910,000 over three years.
"This is exactly the kind of abusive scheme that leaves Americans feeling disgusted with our tax system," said Senator Ron Wyden, the panel's top Democrat.
Bessent said that he would set aside funds to pay any taxes owing once the case is decided. He has pledged to shutter Key Square to avoid conflicts of interest if his nomination is confirmed.
FED INDEPENDENCE
Markets were expected to scrutinize Bessent's comments on keeping the Federal Reserve independent for clues as to whether Trump would try to exert control over the US central bank given the president-elect's frequent complaints over Fed interest rate decisions.
But Bessent came down firmly on the side of Fed monetary policy independence, adding that Trump would still make his views known.
"I think on monetary policy decisions, the FOMC should be independent," he said, referring to the Fed's rate-setting panel, the Federal Open Market Committee.
Although some economists have said that Trump's plans to impose tariffs, cut taxes and curb immigration would be inflationary, Bessent disagreed, saying Trump's plans, including increased energy production, would lower inflation to the Fed's 2% target while increasing wages.
Despite Trump's longstanding complaints about a strong dollar hurting US exports, Bessent said: "Critically - critically - we must ensure that the dollar remains the world's reserve currency."
Bessent also rejected the idea of a central bank digital currency for the Fed, saying that the dollar's wide use and security made this unnecessary. He said he was open to the idea of creating a US sovereign wealth fund, but said the US needed to get control over short-term deficit growth first.
HIGH DEBT, LESS CAPACITY
Bessent vowed that there would be no debt default on US Treasury debt under his watch. Asked whether Congress should abandon the federal debt ceiling, Bessent said that if Trump requested that, he would work with Congress to make it happen.
The high debt level means that there is less capacity to borrow heavily to combat a crisis, Bessent said, citing examples of the 1930s Great Depression, World War Two and the recent COVID-19 pandemic.
"Treasury – along with the whole of government and Congress - has used its borrowing capacity to save the union, save the world, and save the American people," Bessent said. "What we currently have now, we would be hard pressed to do the same."
