Bessent vs. Powell: Who’s Right on Markets and Policy?
Fed Chair Jerome Powell remains hawkish, warning of tariff-driven inflation and dismissing the notion of a “Fed put.” Meanwhile, Treasury Secretary Scott Bessent offers a bullish outlook, emphasizing progress on tax cuts, deregulation, and available monetary tools.
Powell’s Hawkish Tone:
Jerome Powell, in his latest interview, signalled satisfaction with employment and the disinflation trend but expressed concern about the inflationary impact of escalating tariffs. He emphasized that the Federal Reserve would remain data-dependent and that fiscal policy, not monetary stimulus, needed reform. Crucially, Powell rejected the idea of a “Fed put”—the notion that the Fed would intervene to prop up falling markets.
Powell’s stance suggests the Fed may stay restrictive longer than markets expect, even as investors begin to price in a 60% chance of a rate cut by June.
Bessent’s Bullish Case:
Scott Bessent’s tone was far more optimistic. While tariffs dominate headlines, Bessent stressed that substantial progress is being made on the tax bill, aiming for permanence of the 2017 Tax Cuts and Jobs Act by July 4th. Alongside deregulation efforts, this could provide multiple positive catalysts for markets later in the year.
Most notably, Bessent discussed the use of Treasury buybacks—an unconventional tool where short-term debt could be rolled into longer-term securities, similar to a form of “stealth QE” that could help manage yields without formal quantitative easing announcements.
Bessent also highlighted other liquidity tools such as:
- Adjustments to the Supplementary Leverage Ratio (SLR), easing capital requirements for banks to promote more lending and market liquidity.
- Expanded use of the Discount Window, encouraging banks to borrow directly from the Fed, potentially stabilizing liquidity during market stress.
- Increased focus on stablecoins and blockchain-based assets to strengthen demand for U.S. Treasuries and inject new liquidity channels into the financial system.
Conclusion: Stimulus Will Be Necessary
Despite Powell’s hawkishness, macroeconomic fundamentals suggest that monetary easing may be inevitable. With U.S. debt-to-GDP ratios at historically high levels, history shows that monetary inflation (rather than painful deflation) is the preferred method to manage debt burdens. This strategy mirrors past decades like the 1950s–1970s, where inflation was used to erode the real value of debt.
As inflation expectations cool in the near term and growth slows, the path is clearing for rate cuts and eventual monetary stimulus.
Current bearish sentiment may be excessive. Catalysts like falling inflation, fiscal stimulus, and stealth monetary easing could drive a bullish turn for selected assets in the short term.
Ultimately, monetary stimulus and inflation will come, as it always does, and investors must come to terms with its transitory nature.
Just a reminder this is my opinion not financial advice, please make sure to do your own research.