There have been numerous discussions surrounding President-elect Trump's pick for Treasury Secretary, Scott Bessent. In this article, we break down our thoughts on this appointment, analyzing the potential implications for our economy and investments.
Why Did Trump Choose Scott Bessent?
With trade and tariffs at the forefront of Trump’s proposed policies, Bessent lends credibility to Trump’s economic agenda, has the trust of financial markets, and is viewed as someone that can shepherd policy changes through Congress.
Compared to other cabinet appointments we’ve seen thus far from Trump, Scott Bessent is a more traditional candidate and well known to market participants. He comes from a successful career as a hedge fund manager, having worked alongside prominent investors like George Soros and Stanley Druckenmiller. His focus has been on global macroeconomics — he was the key analyst on the trade that famously “broke the Bank of England”, enabling Soros’ Quantum Fund to make more than $1bn shorting the British Pound.
Upon making this appointment, Trump said "Scott is widely respected as one of the world's foremost international investors and geopolitical and economic strategists”.
Why Was the Market Happy?
After Bessent’s appointment, stocks moved higher and yields fell, as investors signaled this pick will be good for economic growth while de-risking some concerns around inflation.
Hedge fund managers are known for isolating very specific bets they want to make and hedging against unintended negative consequences. Investors expect this approach to guide decisions as it relates to trade and domestic policy.
One thing is certain — markets do not like uncertainty. Bessent brings a familiar voice to the highest economic post. He is viewed as steady, deliberate and measured, serving as a counter-balance to what some fear can be a more unpredictable administration.
What Does This Mean for Tariffs and Inflation?
Bessent has been a vocal supporter of a more aggressive trade policy, advocating for the use of tariffs as strategic tool to improve our economic position.
However there are a few insights we can glean from his prior comments regarding tariffs:
- He views tariffs as a means to an end. He has compared them to sanctions — tools meant to penalize "bad actors" that can be lifted once the counterparty changes its policies.
- He believes in taking an aggressive stance as a negotiating tactic while implementing more measured policies. In a note to investors earlier this year, he said "the tariff gun is always loaded but rarely discharged”.
- He has also advocated for a gradual approach to implementing tariffs, demonstrating he’s cognizant of potential resulting shocks to the economy.
- He’s said in the past that inflationary immigration policies (limiting the number of workers) and sweeping tariffs likely can’t be put in place at the same time. Again, this shows the potential for a more structured approach to policy decisions.
Importantly, he has been very clear about the dangers of inflation. He was a vocal critic of the Fed’s actions post-pandemic, saying they waited too long to raise rates to stem inflation.
What Will It Mean for the Economy?
It’s reported that Bessent pitched Trump on a 3-3-3 policy:
- 3 million more barrels of crude produced domestically
- GDP growth of 3%
- Reducing the deficit to 3% of GDP
His approach to achieving these goals aligns with President Trump's talking points, as he believes the targets can be reached through a combination of strategic initiatives. These include rolling back regulations to ease business operations, boosting domestic manufacturing capabilities, expanding American energy production, and implementing tax reduction policies to stimulate economic growth.
What’s the takeaway?
From our perspective, there are still many unknowns about the changes we’ll see in President Trump’s second term, but Scott Bessent's appointment as Treasury Secretary suggests a shift toward a more measured and strategic approach to U.S. economic policy.
Investors are hoping Bessent will help safeguard consumer interests while navigating complex trade negotiations and respect the dangers of inflation in evaluating any policy decisions.
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