Treasury Secretary Bessent on Tax Bill, Next Fed Chair, Government Debt

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Bloomberg Jul 1 01:15 · 16.9k Views

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00:00 We are now joined by U.S.
00:01 Treasury Secretary Scott Becent
00:03 just as the Senate has begun voting on what's known as the big beautiful bill.
00:09 You look at the latest version of the tax bill, the big question that remains is the GOP holdouts.
00:15 What kind of deal can be cut with those holdouts and what are you and the president prepared to offer for support?
00:21 Well, I, I'm, I'm confident that the, the bill is going to progress as is over the next few hours and it'll be on the,
00:30 the president's desk to sign on July 4th.
00:32 So
00:33 the Senate, Senate will vote pass it over to the House.
00:36 We've seen incredible leadership and this is what leadership looks like.
00:39 So President Trump
00:41 that they,
00:44 Speaker Johnson, Leader Thune
00:46 and at the committee level, Senator Crapo and Chairman Jason Smith have have been fantastic to work with.
00:53 And again, it it all goes back to leadership.
00:56 Now when it comes to the fiscal Hawks, has the administration made any assurances about executive orders or legislation down the road to address the national debt load?
01:06 Well, I, I think everyone believes that this is a start.
01:09 So it's an 11% cut in non discretionary spending
01:14 and we're going to go from there.
01:16 So we didn't get here
01:18 all at once.
01:20 We've gotten here 20 or 40 years and we are going to bend the curve, bring the debt levels down.
01:27 I'm a fiscal hawk.
01:29 I've had a lot of very good meetings
01:31 with the
01:33 that group,
01:34 and I think we're all on the same page on how to
01:37 grow the economy while controlling and bringing down expenses.
01:41 Now,
01:42 let's talk about some of the math there as well.
01:44 Because if the GOP is right and the bill does look to shrink the deficit, how will that affect Treasury issuance over the next 10 years?
01:53 How
01:54 does your math square with
01:56 the CBO, with Wharton, with Yale and even the Bloomberg consensus of GDP projector, your economist that still see growth under 2%?
02:06 Well, I I think that's just wrong.
02:08 And you know, we can start with the CBO
02:10 is their model presumes 1.8% forever
02:14 and maybe under Democratic governments.
02:17 That's right.
02:18 I think what we saw
02:19 under President Trump's first term is that we will get
02:24 a big
02:26 boost
02:27 in the economy
02:28 from the tax bill and we're going to have certainty.
02:31 We're going to go back to 100% expensing.
02:33 So
02:35 we are also deregulating at the same time.
02:38 So we saw it in Trump 1.0.
02:40 I think that we can see it here.
02:42 So I think we can really accelerate
02:45 the
02:45 economy because the CBO model shows 1.8% growth whether we have the biggest tax cut in history
02:53 or we get this across the line and give
02:56 companies and consumers great certainty.
02:59 You mentioned that the spending cuts were just a start.
03:02 Now, which will prevail when you think about the cuts
03:06 specifically as it pertains to Medicaid, will the House level of cuts to Medicaid prevail or the Senate level and which one will the president support?
03:15 We'll we'll see
03:17 my, my senses and again, I, I take exception to cuts.
03:20 We are actually bending, bending, bending the curve further out.
03:24 We are getting able bodied people back to work and the most needy will have greater benefits.
03:32 Well, the main question too is the benefits that are being cut.
03:36 What do you tell the nearly 12 million people that are on the brink of losing access to Medicaid?
03:41 Well,
03:42 again, that that's not right.
03:43 One 1.4 million are illegal aliens.
03:47 Then a huge percent of that are
03:50 the able body working people
03:54 who
03:55 will need need to go back to work.
03:57 So we're going to have a work requirement
04:01 and we'll go from there.
04:02 We're just going back to the levels pre COVID.
04:07 So
04:08 given where the bill is,
04:10 how does the latest bill impact the trajectory of the deaf and debt and deficit in your view?
04:16 Well, again
04:18 that I, I think as we accelerate growth
04:21 and increase growth trajectory
04:25 completely changes the debt dynamics.
04:27 So what we're focusing on is the, the debt to GDP, we're going to start bringing that back down.
04:34 We are going to pull down the the deficit to GDP
04:38 and you know, I think we will be
04:41 turning both of those down over the next year.
04:44 Does it give you though enough confidence to start turning out the debt?
04:48 At what point do you start issuing at longer dated maturities?
04:51 Well, what, why would we do it?
04:53 The
04:53 at at these rates,
04:55 we we are more than one standard deviation above
04:59 the the long.
05:00 Term
05:01 we're one more than one standard deviation above the long term rate.
05:05 So why, why would we do that?
05:07 You know the time to have done that, what would have been
05:11 in 20/21/22.
05:13 So,
05:14 so a lot of people in the market point out to the success that has been in the bond market.
05:19 You have seen the 10 year come down almost a half a percentage point since the January highs.
05:25 Where would you like to see the 10 year and where do you think it could end by the end of the year?
05:29 Well,
05:30 I, I think it's going to
05:31 depend on a lot of things, but I think that we could see
05:36 a further
05:38 lowering up rates.
05:39 I think inflation is very, very tame.
05:43 I'm not going to comment on Fed policy, but I've said that I am focusing on, on the tenure.
05:49 So as, as we see
05:51 inflation come down, I think the whole curve could parallel shift down.
05:56 And
05:57 you know, I'll point out when everyone says, oh, the market,
06:00 the bond markets worried about this or that in the
06:04 Usus is the only major bond market that has
06:07 lower Kenya rates
06:09 than any other country.
06:11 Every other country the rates are up.
06:14 While we're talking about interest rates and the Federal Reserve, it has been recently reported that you might be in consideration for the job as the next Fed chair.
06:23 You've when you've been asked about the likelihood recently, you said that it's up to the president.
06:28 Is it a job that you would want?
06:30 I will do what the president wants, but
06:33 I think I have the, the best job in, in DC.
06:35 We're making a lot of progress with the president's leadership.
06:39 You know, think of, think about it.
06:40 We are going to have the tax bill on his desk by July 4th.
06:44 We're going to be wrapping up
06:46 the, the trade talks.
06:48 So I, I think we had great momentum
06:51 and we will be working
06:54 on
06:57 Chair Powell's successor
06:59 the over the coming weeks and months.
07:02 You had mentioned that an announcement could be as early as October or November and Powell's term ends in May of 2026.
07:11 How is the street supposed to navigate between that announcement time and the time between the
07:17 term being over for Chair Powell?
07:19 You were the 1.
07:20 I want to remind people that had brought up the idea of a shadow Fed chair prior to the election.
07:25 Is a new appointee supposed to be considered that shadow Fed chair?
07:29 Well,
07:30 not necessarily.
07:31 We'll see.
07:32 There's a
07:33 seat opening up, a 14 year seat opening up in January.
07:37 So
07:39 we've given thought to the idea that perhaps that person would go on to become the chair when
07:45 Jay Powell leaves in May
07:47 or
07:49 we could appoint the new chair
07:51 in May
07:52 Unfortunately, that's just a two year seat.
07:57 Ultimately, Do you think that there could be some confusion?
07:59 Well, I, I don't see why there would be confusion because, you know, obviously there are people who are currently
08:05 they at the Fed who are under consideration.
08:09 So why, why would there be confusion if
08:11 that you, you add
08:13 another candidate in January.
08:16 So
08:17 what about Fed policy as it stands today?
08:20 The president has voiced his preference for lower interest rates.
08:23 There have been
08:24 investors, but also most recently the Bank of International Settlements warning about any inflation risks tied to the tariff policy.
08:31 Realistically, how much can the Fed lower rates this year and what is the level and rate of unemployment that would suggest a faster pace of rate cuts economically?
08:42 What has to slow?
08:43 Well, look, I, I, I said during my confirmation, I won't talk about the mistakes the Fed's going to make.
08:48 I'll only talk about the ones they have made.
08:51 They made a gigantic mistake in 2022.
08:54 And as I like to point out,
08:56 medical studies have shown that people who fall tend to look at their feet,
09:00 which makes them fall more.
09:02 And my worry here is that having fallen down on the American people in 2022,
09:07 Feds now looking at their feet.
09:09 We have seen no inflation from tariffs.
09:14 If we do, which we don't have to,
09:16 then there'd be a one time price adjustment.
09:19 Nothing is more transitory than that.
09:21 So, you know, team transitory having failed the American people in 22, they seem a little frozen at
09:29 at the wheel here.
09:32 Part of this uncertainty does relate back to the trade deals.
09:35 You've set a deadline for July 9th
09:37 with key trading partners, or at least the administration in total has.
09:40 How many of the key 18,
09:43 the
09:44 18 most important partners that you have been speaking about have deals that will be agreed to by that time?
09:50 You know, we'll, we'll, we'll see.
09:51 I'm not going to negotiate on TV and let people off the hook.
09:54 But as always, there's going to be a flurry going into the final week as the pressure.
10:00 Increases, what can you tell us about what's coming out of those deals?
10:03 Are they inked deals or are they negotiations
10:07 for future deals?
10:08 Well, what what I can tell you
10:09 is that
10:11 the staff level, whether it's a treasury at USTR, at Commerce, people who've been around for 20 years
10:19 are an amazement and they're saying these companies, these countries are coming with offers that they can't believe.
10:26 So
10:27 in terms of bringing down tariffs, non tariff trade barriers,
10:31 we're leaving aside currency,
10:34 the
10:34 financing of
10:37 the
10:38 labor
10:39 and
10:40 capital
10:41 in in an advantageous way.
10:43 All these countries are pulling back.
10:45 So you've said that trade negotiations could be wrapped up by Labor Day.
10:50 How should investors and nations impact be thinking about that July 9th deadline
10:55 and
10:56 could that be pushed back to avoid going back to those April 2nd tariff rates?
11:01 Well,
11:01 that's going to be up to President Trump.
11:03 And you know, I'm not going to tell
11:05 any country
11:07 we we have countries that are negotiating in good faith, but they should be aware that
11:12 if we can't get across the line because they are being recalcitrant, then we could spring back to
11:19 the April 2nd
11:20 levels.
11:20 I hope that won't have to happen.
11:23 So one other part of the tariff strategy that a lot of investors have been asking about is
11:28 related to the housing affordability crisis.
11:30 There's still Section 232 tariffs being seen
11:33 as it retains to
11:35 lumber and timber.
11:37 Those are key materials for housing construction.
11:41 Are you in support of them ultimately, given where we are in the housing affordability crisis today?
11:45 Well, I, I, I think
11:47 it's important to break down.
11:48 So what we're negotiating now are the reciprocal tariffs
11:52 230 twos take longer to implement.
11:55 So, you know, we'll, we'll see what happens with those.
11:59 Also on the housing market.
12:02 What kind of timeline?
12:03 Well, first of all, is Fannie and Freddie going to be privatized and what type of timeline would you look to do that on while also ensuring that mortgage rates won't skyrocket on the heels of such a plan?
12:14 Well, let's, let's work backwards on your question is
12:18 any, anything we do
12:19 the, we will be focused on the mortgage rate, the spread of mortgages over Treasuries and ensuring that that does not move.
12:27 But you know, I, I, I can tell you that we have been busy with
12:31 peace deals, trade deals and tax deals.
12:33 And
12:34 once
12:36 peace deals going well, tax deal
12:39 done on July 4th,
12:41 a trade deal wrapping up Midsummer and then we will focus on Fannie and Freddie.
12:48 One more question for you.
12:50 Another thing that is making its way through Congress is
12:53 legislation as it pertains to cryptocurrency.
12:55 But right now, stablecoin,
12:57 will
12:58 this bill help
13:00 in terms of making stablecoins a bigger force in the payments market, in the treasury market?
13:06 Will they be a larger force of what
13:10 absorbs
13:11 new treasury supply?
13:12 Well,
13:14 what you're referring to is the Genius Act the Senate's passed.
13:16 It is now with the House,
13:18 President Trump, myself,
13:21 much of the Senate leadership and
13:23 many in the House are encouraging them to pass the Senate bill as is.
13:29 I think we could have that also done by mid-july.
13:32 And I think stable coins create an exciting new
13:37 payment rail.
13:38 And importantly, it will be a source of demand for the US Treasury market.
13:43 Because if you think about it
13:46 in terms of
13:47 preference globally, would you rather have
13:51 a private stable coin that's backed by U.S.
13:54 Treasuries with
13:55 US best practices regulation?
13:58 Or would you rather have an ECB or a PBOC central bank digital currency that if you write a mean
14:06 the ex post, the government can turn off?
14:09 I think everyone is going to choose the US private sector with US regulation all day every day.