00:00:00
Secretary Bessant, welcome back to All-In. We appreciate you taking the time to catch up with us and provide
00:00:06
this first year in review. We're excited to have you here and hear how things are
00:00:11
going and what's ahead regarding the fiscal condition of the US government, the economic condition of the US
00:00:19
economy, including how things are going for Wall Street and Main Street. And finally, we'd like to broadly discuss
00:00:24
some of the administration's policies, decisions, and how they're playing out
00:00:27
or will play out from your point of view. I'll start us off and maybe to catch up on our last conversation. One
00:00:35
of the things that I've cared deeply about and which you shared an objective
00:00:38
around is getting the budget deficit below 3% of GDP. I'd love to hear uh from your point of view how that's going
00:00:48
and how things are looking for fiscal year 26. the actions that have been taken and what you think's ahead for
00:00:54
that target. >> Good to be with you. Happy to review the year, talk about next year. Uh there's a
00:01:00
lot going on. I would c categorize 2025. We had some important victories, some important policy announcements, uh some
00:01:08
important movement, but I as I've described it, 2025 was setting the table. And I especially on the economy,
00:01:16
I think the the feast and the banquet's going to be in 2026. To start with the budget deficit,
00:01:23
we didn't get much credit because it came out during the shutdown. The the US
00:01:28
fiscal year is on September 30th. We had a slight fiscal contraction for the year. Wasn't much, but much better than
00:01:37
the 2.0 trillion that was estimated. We came down from about 1.8 trillion to 1.78.
00:01:46
So, a a contraction nonetheless for the calendar year. We're making great progress. And just to put it in context,
00:01:54
Biden administration, they blew things out try trying to get Vice President Harris elected in the fourth quarter. So
00:02:03
last year 2024 40% of the government spending occurred in the fourth quarter as they had the un
00:02:13
uh successful or their unsuccessful attempt to convince voters that they uh weren't in
00:02:20
a world of hurt. I forecast that we will have approximately a 200 to 300 billion
00:02:26
fiscal contraction uh for the calendar year which is between 7 1% of GDP. We're
00:02:35
going to end the year with nominal growth close to 6%. So we will be bringing down the deficit to GDP. I
00:02:45
believe it peaked 6.8% 8% for the calendar year previous year and we're going to be in the mid-5s. So, it's a
00:02:53
very good start on an important journey and I've said that I would by the time
00:02:59
President Trump leaves office that we would like to uh have something with a three in front of it which will
00:03:05
stabilize the deficit to GDP which is the important number and enable us to start paying down debt.
00:03:13
Scott, it seems like the tariffs have had an enormously positive impact. It's
00:03:18
given you a lot of tools in the toolbox to work with. Why do you think so many people got it wrong? A lot of people,
00:03:28
I'm sure, that you've known and worked with in your prior life as a hedge fund
00:03:31
manager. What did they get wrong? What did they miss that you were able to see? >> Well, I I a couple of things. I I think
00:03:40
people didn't have an open mind. Uh they became the Trump tariffs which immediately a large cohort. Uh whether
00:03:49
it was government officials, industry people, the general population because President Trump wanted to do it, it must
00:03:55
be bad. I I said the other day, President Trump cured cancer but it caused dandruff. Then people would say,
00:04:03
well, you know, President Trump has caused a dandruff epidemic. And um look that there's a lot of orthodoxy that
00:04:12
hasn't worked. If we look back early early 2000s letting China into the global trading system that they would
00:04:20
become more like us and there was a point and I'm somewhat sympathetic to the people who believe that but by 2013
00:04:29
when Xiinping came in and great writers like Elizabeth economy who had been of that view reversed and said he's a
00:04:38
different kind of cat. It's no longer going to be Chinese policies with capitalist tendencies. It's just going
00:04:45
to go back to, you know, hard communism, Leninism. And I I just think that it was
00:04:54
a failure of imagination. I I've said several times people and maybe we'll
00:04:59
talk about it today when people ask me, "What are you looking for in a Fed chair?" Said, "It's someone with an open
00:05:04
mind." If we go back to the 1990s, Alan Greenspan did a magnificent job because
00:05:11
he had an open mind that the internet office modernization boom was going to create a productivity bonanza for the US
00:05:22
economy. And he let the economy he let it rip. And we had an incredible economy paid down a tremendous amount of debt
00:05:31
that by 1998 1999 with a combination of Clinton administration having gotten religion new Gingrich and his policies
00:05:44
there was talk the at the end of the 90s that there might not be enough government debt to you meet the needs of
00:05:52
the financial system which is the opposite of what we have Now, so again, I I would uh part of it was just
00:06:00
anything the president does must be wrong. Part of it was a failure of imagination. And you know, there there's
00:06:06
some very good studies coming out now that are showing why why everyone has been wrong that the the measurement
00:06:14
problems the on the increase in goods prices. There's a study from not a friend of the
00:06:23
administration, the San Francisco Fed with 150 years of data, I would refer everyone to that that shows that tariffs
00:06:31
do not cause inflation, that they're actually disinflationary. So, has anybody read that study? Scott,
00:06:39
has that been, I would say, a part of the conversation in the administration now that there's
00:06:45
this new revenue stream for the federal government, there's an opportunity to
00:06:50
cut taxes and cut other sources of revenue for the federal government and that could potentially accelerate the
00:06:56
economy. But balancing that question against the importance of cutting the deficit, how do you think about the
00:07:04
balance between using tariffs as a mechanism for reducing the tax burden on the economy versus using the tariffs as
00:07:12
an incremental revenue source for the federal government to start to reduce the deficit and pay down the debt
00:07:17
eventually? David, before I answer that, another thing I want to go back to is President Trump and one one of the
00:07:23
reasons for the success of the tariff policy or I I'll give you two reasons.
00:07:28
One is that President Trump has used them for national security. So the tariff policy has become part of
00:07:34
national security who's able to use the tariffs to negotiate trade deals. when
00:07:39
he ratcheted up some of the tariff levels to 35 49 50% even 145 with the Chinese it brings
00:07:49
people to the table in uh the spring the president put fentanyl tariffs on Mexico
00:07:59
they've all come to the table to help and partner with the US government to end this scourge on our people we're
00:08:06
seeing fentanyl deaths drop We because of the the good efforts of China, we made a good faith move and decreased
00:08:15
their fentanyl tariffs by half down to 10%. So that's been national security.
00:08:22
Same thing on October 8th when Beijing announced that they were going to put a worldwide export license on any any
00:08:32
product that had 01% of Chinese rare earths in it, which would have ground the Western trading system to a halt.
00:08:40
President Trump was able to threaten a 100% tariff and the Chinese immediately came to the table. The the other thing
00:08:47
that I would say so so that's all national security. The other thing that I would say that people missed that I
00:08:54
was convinced of is that the Chinese business model is based on volume. It's
00:08:59
based on employment. It's based on a 5-year plan. And I I think everyone neglected the idea that despite the t
00:09:08
the tariffs, the Chinese were going to keep producing that it it's one of these
00:09:13
they may lose a dollar on every product, but they make up for it in volume. Can we forecast these tariffs through 28 or
00:09:21
do you think that we have to have moments where whether it's the Supreme Court who's opining on one body of
00:09:29
language versus another may change your course? But do you feel confident that we can forecast these revenues now out
00:09:35
through the balance of President Trump's term? >> Well, I I think the I think the revenues
00:09:41
are are a combination of revenues. So the the ultimate goal of tariffs the the revenue collection I think but of in a
00:09:49
way is a payback for the imbalances that have gone on over the years. But over time the the real idea is to balance
00:09:58
trade and reshore manufacturing and bring our economy into balance with our trading partners. So what should happen
00:10:07
is over time tariff income will come down and US tax receipts will come up whether it's from factory jobs or more
00:10:18
manufacturing and through higher payroll taxes. So you we will we will start off
00:10:25
at this very high level then we will rebalance and come up. So I I I think it's difficult to know the timing. We
00:10:33
know the direction. We know the destination, but the the timing is difficult on terrorists versus increased
00:10:40
domestic tax revenues. What what I can say is when when I got into the investment business in the 1980s, there
00:10:47
was always a focus the on trade and how much were we making in the US and again that everything made outside of the US
00:10:56
is a decrease in US GDP. So, as we bring it back, I think we're going to start
00:11:01
looking more at the the content of trade versus domestic manufacturing as a component of GDP acceleration.
00:11:12
>> As we wrap tariffs, we have a Supreme Court ruling coming in January. What happens if that goes
00:11:19
against the administration? >> Well, I I don't think it's against the
00:11:23
administration. And I actually think it's against the American people and it
00:11:27
it will be again as I said it it will be a hit to national security and the the the revenues aren't the the focus here.
00:11:38
The revenues aren't the focus. The the the revenues can be replaced but all all
00:11:42
the things that President Trump has been able to do using tariffs on the national
00:11:47
security side will be will be jeopardized. >> Would you be able to just work with
00:11:52
Congress on them? seems to how the constit see seems to be how the constitution was designed is that the
00:11:57
congress would have this authority. So why not just work with them? Is that the fallback plan?
00:12:01
>> What why would you say congress would have what authority? >> Well the constitution has tariff
00:12:08
control. So that's at least my understanding of the US constitution and I think that's why there's a supreme
00:12:14
court case. Correct. Uh well the we we'll see uh the the president has has the right under AIPA the for licenses
00:12:24
we've also seen um it it was I I was at the Supreme Court and for for your viewers a bucket list event should be
00:12:35
going to see a Supreme Court hearing. It it it it is in terms of any institution
00:12:42
that is the closest to what our framers designed and kind of jumped into business in 1789. It is probably it is
00:12:51
surely the closest to what you would have seen at the court. They're very convivial with each other.
00:12:58
>> Yeah. I listen to it. It's quite compelling content. Yeah. >> Yeah. It's it's and to to be there in
00:13:02
person uh not not my political leanings but ju justice Kagan the was just an intellect of towering uh impressiveness.
00:13:14
I came away thinking I am glad that Justice Alto is not my father because he he he he
00:13:22
is smart. He is bombastic and when when he he got the knife into a couple of the
00:13:30
plaintiffs in a line of questioning and he uh move moves it around quite a bit. So, um, but one one line of questioning
00:13:40
in in this that one one of the plaintiffs agreed on was so and it was either from Justice Alita or Justice
00:13:48
Kavanagh was you were telling this court that the president of the United States
00:13:53
can do 100% embargo but he cannot put on a 1% tariff and the plaintiff said yes.
00:13:59
>> Yeah. And that ruling is coming out in a few months. It's >> January or February expectation. Yeah.
00:14:04
>> January, February. And Jason, to your question, u I I I don't know what the
00:14:11
ruling is going to be. My my guess is everyone, you know, I I think that framing is very important in any issue.
00:14:20
And I think the framing thus far has been very poor because it's viewed as 01. It's up down. And I my guess is it
00:14:29
will be more nuanced. having been in the room for instance I I think uh many in the media were at a different hearing
00:14:36
than I was at. So when Justice uh Barrett Comey Barrett said if we undo this it'll be a mess that was viewed as
00:14:47
just it will be a mess as opposed to I believe she was actually leaning toward looking for a reason not to undo
00:14:57
it because it would the refund she was referring to the refunds the president has absolute ability or the executive
00:15:04
branch has absolute ability through 301's 230 32s and something called 122s to raise revenue on trade. So
00:15:15
using the IEPA is not a stretch of that authority. >> Okay. So I I think the question and I
00:15:24
really appreciate the introspection here on year one and the optimism for year two. Wall Street, the tech industry,
00:15:30
we've absolutely loved the results in year one. My portfolio has surged. So that's fantastic. Thank you. probably
00:15:36
beyond my expectation, but Main Street is particularly displeased with the Trump administration's first year. Your
00:15:43
net approval rating is the lowest on two key issues. Inflation net approval rating down about 30% uh on average
00:15:50
since the summer and on the economy 18% net negative. And so this is quite paradoxical obviously since Trump was
00:15:58
elected and considered historically very strong on those two specific issues. So
00:16:04
my question to you is, are the American people wrong? Or maybe did President Trump set expectations too high during
00:16:11
the election or do you just need more time to execute and you're asking the American people humbly to give you more
00:16:17
time? >> Well, I I I think it's C because as Vice President Vance has said, we didn't get
00:16:24
here overnight. We inherited a mess. And I think 2026 is going to be a a very good year for the American people for
00:16:33
Main Street. And what we are not going to do is a which is what the Biden administration did and many commentators
00:16:42
whether it was Greg in the Wall Street Journal, the toxic Paul Krugman who I seems to have been booted from the New
00:16:48
York Times and is relegated to Substack or the former vice chair of the Fed uh Alan Blinder. And they said, "Oh, no.
00:16:56
You don't understand how good you have it. You know, eat eat your drink your
00:17:00
grog, have your bread, peasants. Um, we we'll give you a little more that you
00:17:07
It's a vibe session. And we're going to explain to you why you have it really
00:17:11
good. We understand that the American people are hurting. And I think the way to think about it is there's a price
00:17:18
level that things appreciated to during the Biden administration. And then there
00:17:24
is the inflation level. The price level has gotten very high. Uh I think cumulative CPI during the Biden
00:17:32
administration was 21 22%. There's a Wall Street firm called Strategus Research. They do something called the
00:17:39
common man index and it it is what do working families need? gasoline insurance, the uh autos, mostly used
00:17:48
cars, rent, staples, and that appreciated by about 35%. So, people are seething over the
00:17:58
high price level. And you as we saw in the inflation print this week, inflation is starting to turn down. And affordabil
00:18:08
affordability is two parts. It is getting the price is under control. Some things we can decrease. Gasoline is
00:18:19
coming down substantially. I would expect that it would come down much more. Oil. Oil is down substantially.
00:18:26
Gasoline follows it with a lag. Uh rents are down and we are now seeing uh the effects of what 10 to 20 million
00:18:35
undocumented people coming into the country did for rents. that this mass unfettered immigration for D and C rent
00:18:43
levels was through the roof. There there's a study from Wharton that shows that one 1% of population increase in in
00:18:52
a city leads to 1% rent. So, you know, we can see why rent went up that if the migrants are going home, we are now
00:19:00
seeing rents are down about 5%. I think that trend will continue. Again, the inflation numbers are starting to roll
00:19:08
down. I think that they will. And then the other side is real incomes, which I think are starting to accelerate. Real
00:19:16
incomes are about up about 1.8% since President Trump took office. And that's
00:19:21
back to the Main Street question. >> So, just one quick followup there and
00:19:25
I'll give it back to my compatriots. We need more time. This is not a one-year project. It's going to take two
00:19:31
or three years and we're not going to gaslight you and the numbers are looking
00:19:35
good. On that note, we had the shutdown October numbers were not complete. There's a bunch of reports now uh and
00:19:43
hand ringing over those numbers. I think maybe you could address it, which is the
00:19:46
BLS filled in a lot of the non-servey data sources with some zeros. Uh and potentially the criticism now or the
00:19:56
concern on Wall Street and from analysts is that maybe this 2.7 number is over optimistic. maybe you could address
00:20:05
people's concerns and can we trust you with the numbers I think is what Wall
00:20:08
Street saying. >> Uh well, you know, again, it it's amazing when a good number comes out,
00:20:14
then it switches to that. And Jason, just let me tell you, every every Wall Street predictor on Bloomberg was wrong.
00:20:23
So, what do you do when you're wrong? You blame the measurement. You blame the
00:20:27
the data. And there there's always a lot of imputed data the in any of these
00:20:32
numbers. That's why we get revisions. And I I'm looking at I was looking at
00:20:37
the numbers and paradoxically the two things that I think are coming down the fastest which are rent uh also it's
00:20:46
known as the owner owner occupied uh funding or owner occupied rent. Uh that was actually up on the month. I believe
00:20:56
it is uh turned negative. And then the other thing that was up was energy and gasoline which we can is an observable
00:21:04
event that those prices have decreased substantially uh from September October. So I I actually think it was a a pretty
00:21:14
uh accurate number. >> So you've checked into that the BLS numbers from October. You feel confident
00:21:19
they they put those placeholders. They put those assumptions in correctly. You feel confident in that? Look, the the
00:21:26
the BLS is problematic. We we've seen that the whole time. I have no reason to
00:21:31
believe that this is any less robust than any other data series. And I I would say with with rent, with uh energy
00:21:40
that those are very large components that have turned down substantially that actually recorded a gain for that
00:21:47
measurement period. Just to build on that, we had people on our team go and run our own analysis
00:21:55
both using interpolation and other data points and we get to exactly Scott's
00:21:59
numbers and frankly on on the margin sometimes slightly better. So I think the trend is very much what you and
00:22:07
Kevin Hasset have been talking about in the last couple days. And gentlemen, I would also point you to Fed Governor
00:22:13
Steven Myron, who came came from CEA, he'll be going back to CA probably in February or March, delivered a very
00:22:21
robust uh speech at Colombia. It was either a week or two ago and he made some very interesting measurement points
00:22:30
on inflation. So one one piece of the inflation component there is financial services and that goes up based on
00:22:39
whether the stock market's up. >> That's right. >> When in fact portfolio management costs
00:22:44
have come down that it is showing an increase in cost. So that back to Jason's question on BL BLS uh how how
00:22:54
robust are the numbers? I I think there are a lot of changes that could be adjusted to give us a better picture.
00:23:00
Let's stay on the affordability topic and I would like to go to this essay you
00:23:05
wrote which is uh incredible the Fed's new gain of function monetary policy which you wrote in the international
00:23:11
economy. We'll link to this article. A lot of it goes to how the Fed in many
00:23:17
ways has exacerbated the sense of inequality and the actual factual inequality. But before I ask you that
00:23:23
narrow question, Scott, can you help our viewers just take a step back and give us a little bit of historical context on
00:23:31
the Fed itself? So, we had a central bank in the 1700s, in the 1800s. Andrew Jackson got rid of it. It came back in
00:23:39
the early 1900s. when we established it then versus what it's doing today and you've
00:23:47
studied this carefully. Can you help us understand and contrast and compare how it started versus how it's going?
00:23:54
>> Sure. So, Fed was created in 1913 as a response to the panic of 1907 which
00:24:00
people most people don't know about. It made the crash of 29 look like a day at
00:24:04
the beach. >> Nickerbacher crisis. Yeah, >> the necrobacher crisis and just the a
00:24:10
domino effect within the financial system there there was no central bank. Bank of England is a very old central
00:24:18
bank and had been functioning well. uh JP Morgan actually had to personally step in uh in in the crisis and it it
00:24:28
was deemed that there should be a mechanism for the the government to be able to uh either wind down, provide
00:24:34
liquidity and have have a greater control in the economy rather than priv private operators. For much of its
00:24:42
history, uh Treasury uh had a seat at the table on the Federal Reserve. Post World War II that stopped. And then if
00:24:51
we look at more recent history, what happened after the great financial crisis? We saw this paralysis in the
00:24:58
economy. I think a huge part of it which has been part of my regulatory agenda here at Treasury this year through the
00:25:05
financial stability oversight council is undoing these the poorly thoughtout crisis
00:25:13
crisis legislation. But what the crisis legislation did and look after financial I I've studied and
00:25:21
taught at Yale the history of financial crisis there's always retribution and
00:25:26
you you go from a lack regulatory regime to an over constricted regulatory regime. So coming out of the traumatic
00:25:35
GFC for for 10 years we had this over constricted regulatory regime where the Fed was deemed to be the only game in
00:25:44
town. So you know imagine one one example would be a a home in North Florida that sold for $500,000 in
00:25:55
2006. All of a sudden people are handing the keys back. It is now $150,000. Great buy, great affordability, but
00:26:04
because of the new financial regulation and the incentives that the the banks were in some cases rightly taken to the
00:26:11
woodshed for bad behavior, but there was no incentive to give credit at the bottom. So what happened the asset
00:26:20
owners, people with money were able to accumulate assets. We saw very poor growth during the period during the
00:26:27
Obama administration and the the Fed cap kept rates low for very long. But what the Fed engaged in starting I believe
00:26:36
was October 6 o excuse me March 6 or March 8th uh 2009 was the Fed began began what we call QE or largecale asset
00:26:48
purchases. They went went in the market started buying long bonds and the theory
00:26:53
of the case there is you create liquidity you take safe assets out of the market uh long duration safe assets
00:27:01
and then the people who receive that money uh would buy uh more risky assets. Ben Bernani famously said when he was
00:27:12
asked what's the purpose of QE he told everyone go buy equities. Well not everyone could buy equities. So, we we
00:27:19
ended up with like this this two-tier economy where either you were an asset holder or you weren't and that the Fed
00:27:30
constant probably kept or definitely kept QE going for too long. And you know, I I called the Fed the engine of
00:27:37
inequality. And someone said to me, well, do you believe that the Fed is responsible for economic equality in the
00:27:45
system? And I said, absolutely not. that is not one of their mandates, but they shouldn't be exacerbating it and they
00:27:52
were the the leading cause of it. There there's a fantastic book by a I I know
00:27:59
Karen Pedaru very well. Uh she's center left to maybe hard. >> Yeah. Not not your politics for sure.
00:28:07
>> Not my politics, but her book, The Fed, the Engine, >> her book is excellent. Yeah.
00:28:11
>> Engine of inequality. So we just kept pushing up these asset prices and then
00:28:16
then we got co and uh markets became disorderly and the Fed did exactly what it should do. It came in, it stabilized
00:28:25
the market, but for some reason they decided that they needed to continue this QE right up until the 20 I think
00:28:36
February March of 2023 and they were in essence financing this massive debt increase 7 trillion that we
00:28:45
that we saw during that period. So, as a long way of saying the central bank has
00:28:51
become much more involved in the economy. I think a lot of people don't understand we've gone from what used to
00:28:57
be fairly straightforward rate setting mechanism to now we have kind of this three-headed beast at the Fed or this
00:29:06
very complex calculus that I don't think anyone really understands myself included. uh you have rate setting
00:29:15
policy, you have uh balance sheet policy. So the Fed has a very big balance sheet now. And then you have
00:29:22
regulatory. >> Well, there's a part of your article which was stunning to me where you
00:29:26
describe how the budget of the Fed works and effectively when you understand that
00:29:32
there's a part of the Fed which acts like a hedge fund and effectively is taking risk and the revenues that they
00:29:38
generate are used to subsidize their operations. Can you explain that for folks cuz I I didn't fully realize that
00:29:44
that was happening. >> Yeah. Well, well, again, the that the Fed should make money. Fed typically you
00:29:51
used to make money and would remit money back to the Treasury. And back to to David's question of the budget deficit,
00:29:59
the the Fed was sending back about 3% of GDP through we have senior which is the float on the
00:30:08
currency. uh there are other operations but then they started QE and no one told
00:30:14
the Fed that you know you're not supposed to buy high so they they they paid a high high price
00:30:21
for bonds low interest rates and they're arbitrage the Fed's losing about hundred
00:30:27
billion dollars a year now >> if you look at one of the key drivers of Main Street's satisfaction with their
00:30:36
economic standing it's the price of debt, the ability for them to buy a home, to buy a car, to extend their
00:30:43
lives, and we've got the 10-year Treasury sitting, I think, 42 to 46 right now in terms of the rate. And I
00:30:51
guess this may be a question that brings in two other issues, the fiscal issue and the economic issue. Is that a
00:30:57
reflection of the state of the fiscal affairs of the federal government, the state of the economy, both or the state
00:31:05
of markets selling off bonds? And doesn't the Fed have an important role to play in bringing those rates down and
00:31:11
making rates accessible for Main Street? >> Well, I I think what the the Fed did,
00:31:16
unfortunately, they took modern monetary theory from I say they went from MMT, modern monetary theory to MMP, modern
00:31:24
monetary practice. So that the the the Biden administration issued all this debt and the Fed the Fed bought it. And
00:31:33
there there's a very good study from MIT that's come out that shows uh you know
00:31:38
in a way that only PhDs at MIT can be very precise. 42% of the great inflation was caused by the budget deficit.
00:31:47
Another 17% was caused by the increase in inflation expectations which I think you could tie back to that. So you've
00:31:54
got almost 60% David that was caused by the spending of the inflation. And I think what again to go back to my
00:32:03
earlier point, I think what we're not getting credit for here is that if we can stabilize the budget deficit, even
00:32:10
bring it down, that that will contribute to disinflation. If I think about central bank credibility, no in my
00:32:19
career, probably post World War II, no central bank had more credibility than the Bundus Bank uh up until the advent
00:32:27
of the euro. But they controlled the ger they worked with the German government and they would work with each other hand
00:32:35
in hand. The Bundus bank would say if you give us the fiscal control if you give us if you are not prolificate if
00:32:45
you give us the reasonable fiscal balance we will work with you we will foam the runway to allow you to decrease
00:32:53
spending. We will decrease interest rates. And I I I think that's something we could be doing here. I
00:33:00
>> I'm I'm glad that you too are confused by the Fed's actions, Secretary Besson,
00:33:05
because I read your article and while I understand the mandate to get to 2% inflation, why it's 2%, not three. I'm
00:33:12
I'm curious about your take on that because I did a little historical uh archaeology. I understand somebody in
00:33:18
New Zealand came up with the two target as opposed to 2.5 or 1.5 or three. Let's
00:33:22
put that aside for a second. The thing that I think most Americans don't understand and the and the second
00:33:28
mandate, full employment, robust employment, that seems pretty easy to understand for all of us. But this
00:33:33
qualit qualitative easing and and how they purchase and which assets they purchase and why seems to have a
00:33:40
massively distorting effect on the economy, at least according to your essay and and some of the other sources
00:33:46
you cite in this essay, which we have in the notes uh for people to read. What should we be doing this qualifi this QE
00:33:53
at all? If you had your brothers and you could just, you know, swipe a pen here and and clean this up, would you just
00:34:00
get rid of the QE portion of what they're doing? And how do they pick? Like, how do you pick whose corporate
00:34:06
debt you buy? You know, are you buying Nvidas and Ubers and Google's because
00:34:11
those are great companies or Microsofts or are you buying, you know, Fords or struggling companies or struggling
00:34:17
airlines? How are those decisions made? and and should the American people be buying those things and why?
00:34:23
>> Yeah. So, there's a lot to unpack there, uh, that absolutely large-scale asset
00:34:31
purchases should be part of the so-called central bank toolkit. But I I think if we go back and look at CO,
00:34:39
which was a real test, the the Bank of England had the best model. The markets became unhinged. They stepped in for a
00:34:47
period I can't remember whether it was 30, 60 or 90 days. They stabilized markets and you they they were the buyer
00:34:55
of last resort which is classic theory for what a central bank's supposed to
00:34:59
do. They're supposed to provide liquidity. They're supposed to open a window where financial institutions can
00:35:07
pledge collateral and do it that way. Um, and you know, I'll just point out that when the bond yields were quite
00:35:16
high, the Fed did buy quite a bit. Uh, and they would actually have a large profit if they stopped during during
00:35:24
that period. Instead, they continued on when we were the near near the the zero bound. And what what we've ended up with
00:35:33
here is they pushed the asset price up. The interest rates were low. Many people
00:35:39
couldn't buy a house during COVID, but now the interest rate has normalized.
00:35:43
And you know, we're just in a much more normal period for interest rates, but
00:35:49
we're not in a normal period for asset prices because so many people still have
00:35:53
the 3% mortgages from co and back back to your question on what should the Fed buy traditionally
00:36:02
that the Fed since large scale asset purchases began in 2009, they just bought government bonds. They they
00:36:10
choose the duration. uh they switched uh during COVID because look there there were estimates we were going to have a
00:36:19
20 30 40% GDP decrease. Um so they they were buying indices of high yield bonds of of corporate bonds to stabilize the
00:36:33
market. I think what you're alluding to Jason is also during that period in conjunction with Treasury uh there were
00:36:41
bailouts and that's done by a facility that is negotiated between the Fed and
00:36:47
the Treasury called a 133 facility and you identify strategic industries that may be struggling. It it would not have
00:36:56
behooved anyone for the airline industry to go belly up because of a a virus that
00:37:04
turned out to be quite transitory. So, you know, again, I I think these are emergency powers. I think they should
00:37:12
have them in an emergency, but I think the duration went on much much too long. If you're
00:37:20
now in the bond sales game, Secretary Bessent, I mean, you you've been on the
00:37:25
other side of the market, but now you're selling the bonds. What do you see in
00:37:28
terms of appetite for US bonds? Has China disappeared? Are they still selling down? Are there other buyers
00:37:35
emerging? And how does broader capital markets look to US debt in this moment? Well, it's it's like the John Maynard
00:37:44
Kaine said said a lot lot of economics is is a beauty pageant. You're just picking like who do you think's going to
00:37:53
win? And that that the U the US became the the worldwide winner last year. We had the best performing bond market,
00:38:03
best performing market since 2020. And I I think that was for a combination of reasons. One was the fiscal progress we
00:38:11
made and everyone went from the tariffs. They were a doomsday machine to hm maybe
00:38:20
tariffs are taking us to the promised land in terms of fiscal payown. And uh I I also think inflation expectations have
00:38:32
remained well anchored. Back to Jason's question, why 2%? We've chosen 2%. And
00:38:40
I I I think it it's very difficult to do a midair refueling or to call an audible
00:38:47
on two when you're above two because then it looks like when you're above a
00:38:52
level, you will always fudge upward. So I I think there is a very robust conversation to get back once we are
00:39:02
back to two which I I think will be in sight then we can have a discussion is it much smarter to have a range like
00:39:10
what what drives me crazy the the economy the markets are biology they're not math they're not physics they're
00:39:19
they're nonlinearities they're very complex systems they're mutations in the system and this idea
00:39:26
that we can have this decimal point certainty is just absurd. So I I believe that once we re anchor to the target
00:39:39
then we could talk about a range and we could decide whether the range is from 2.5 to 1.5 is it from 1 to three but I I
00:39:50
think it's very difficult to uh reanchor until you meet the target and maintain
00:39:56
credibility. Maybe as we wrap up on the Fed, can you give us a sense of the candidates that are being interviewed
00:40:03
right now by President Trump, Kevin Wish, Kevin Hasset, >> Waller, >> Chris Waller, and Rick?
00:40:08
>> Chris Waller, Rick Reed. How do you think each of those will try to reshape
00:40:13
the Fed more in this constrained mode that you're advocating for? Well, I I I
00:40:19
think many many of them have already come out and said that they uh do want to shrink it both as the footprint of
00:40:27
the institution in the economy but shrink the institution itself that the the Fed does not as we talked about
00:40:34
earlier the the Fed does not rely on appropriations. The Fed just prints its own money and it's has its own budget
00:40:41
and as I talked about in the article it has its own police force. has its own, you know, we've seen the big cost
00:40:47
overruns at the building uh here in DC. If like if Treasury the we're looking at
00:40:56
new buildings for the the men of the Bureau of Engraving, if we had that kind of cost overrun, I can guarantee you
00:41:04
that I would be up in Capitol Hill getting a the welldeserved earful. >> Yeah. You'd be pillared. Yeah.
00:41:12
So, um, but e each one of them has talked about moving back toward the more traditional
00:41:22
Fed role, moving into the just getting the Fed back into the background. You know, it it it wasn't meant that the
00:41:31
market and the economy and the American people were supposed to hinge on every word. It was supposed to be a
00:41:37
predictable process. You know, I I think many many of them have talked about getting rid of this so-called dotpot,
00:41:43
the summary of economic projections. Uh they they've talked about what should we
00:41:48
do uh with the regional banks. No one no one's talking about getting rid of them
00:41:53
or the regional bank presidents, but should each one of the regional banks have a specialty, go back to a center of
00:42:00
excellence? Why do we have so many overlapping functions? Uh, you know, I I can tell you for for me as someone who's
00:42:08
an economic historian, the interview process has been fantastic because I I got to interview 11 of the most
00:42:16
knowledgeable people on economics, the Fed, monetary policy. One time I got to interview five another time and I'll be
00:42:26
with four of them with the president. So, you know, I I think I understand probably better than just about anybody
00:42:33
in the country what needs to be done and everyone wants to see a de a smaller footprint and more predictability from
00:42:43
what's going on. >> So, what happens in 2026 for Main Street? What can you promise them? What
00:42:51
can you not promise them? What is out of your control? because we talk a lot about hey the speed limit and mortgage
00:42:58
rates but you can't in your position correct me if I'm wrong have a dramatic
00:43:03
impact on the supply of homes as one example so and so whatever you put the rates at it could just drive the prices
00:43:10
of those homes up if we lower rates too quickly and then we have another situation like the great financial
00:43:14
crisis where people are over bidding uh the the the remaining housing stock so what can you actually promise to the
00:43:22
American people will happen in 2026 on Main Street. We know Wall Street's going
00:43:25
to be fine and and these American entrepreneurs and these companies are firing on all cylinders. Fantastic. Lots
00:43:32
of regulations taken out of the way, but what what can Main Street expect from the administration in 2026?
00:43:39
>> Jason, two two things is one there there's nothing I can promise because
00:43:43
that there's always a degree of uncertainty. Uh but one one of the things that we've been doing here at
00:43:50
Treasury when we talk about loosening the financial regulations that the companies that suffered the most under
00:44:00
these regulations were the small banks. So we have seen small and community banks disappear at an alarming rate.
00:44:09
About half of them have disappeared since the GFC. So I what I can promise is that the regulatory regime for those
00:44:18
banks is being loosened and is the the saying that there's three eight banks in
00:44:26
the US that are too big to fail that the policies since the GFC were too small to
00:44:32
succeed and we are doing everything to unleash the lending capability of these banks the pro their profit profitability
00:44:42
will enable them to be part of their communities to lend more. 70% I think I do the statistics 70% of a
00:44:52
lending 30 40% of real estate lending 40% of small business lending are from these main street lenders. So I can tell
00:45:00
you there's going to be a bigger availability of credit. I can tell you that we are not going to blow out the
00:45:07
budget deficit and cause you you will not see an MIT study that says that the Trump 2.0 caused inflation through the
00:45:18
budget deficit. And I I can also tell you that we are working to increase working wages. In President Trump's
00:45:27
first term, hourly workers did better than supervisory workers. bottom 50% of households had a better increase in net
00:45:34
bigger increase in net worth than the top 10%. So you know we we are trying to level the playing field. Secretary
00:45:43
Bessent, this is a I I would say conservative administration. And if you look at the kind of economic
00:45:52
policy of of traditional conservative administrations, you would not assume that the administration would lead the
00:45:59
federal government to make large investments in the private industry or to participate meaningfully in the
00:46:06
economy. As we are seeing with some of the deals that have been done over the last couple of months where the the
00:46:12
administration has taken equity stakes in key industries and key businesses and also has concurrently provided either
00:46:20
regulatory unlock or or some sort of trade participation. Can you just comment on what some people are calling
00:46:27
state capitalism? Is this from your view a a set of strategic interests or is this a permanent shift in how the the
00:46:37
government plays a role in the economy and and and how does that make sense from a free market perspective? David, I
00:46:42
think it goes back to the idea that free pure unfettered free trade was not fair
00:46:48
trade. when when you have competitors whether they're chi China, Vietnam, some
00:46:54
others uh sometimes in in Europe that have high subsidies then like this idea that perfect ricardian equivalents exist
00:47:05
doesn't and we can see by these distortions that developed the these huge capital pools that have developed
00:47:13
because of the imbalances. So if that's one point but and that's trade policy
00:47:20
but on the other side there's national security policy and the only good thing
00:47:25
I can say about co is it woke us up to the national security took us out of this paradigm that elongated free
00:47:36
flowing the supply chains wherever they may be were the best that the um the the
00:47:44
most smoothly functioning was desirable. Well, it it turns out that the most efficient is not always
00:47:51
the safest, the most robust or the soundest. And we saw that during co we we discovered that the Chinese became
00:48:01
unreliable suppliers. Uh India and some of the other countries they acted surprise surprise in their national
00:48:08
interest. So uh what we if you look at the industries where we are taking stakes and moving forward we've
00:48:17
identified five to eight strategic industries where the US we have to have endogenous production or at least
00:48:27
adjacent to us the in North America or this hemisphere. Um we and I I think of it as it's the kind of thing that you
00:48:39
would have seen during World War II and we are in an economic war and we do not want it to become a kinetic war but we
00:48:49
have to be prepared if if it could but when when we think about huge amount 80 90% of the precursor chemicals that go
00:48:58
into US pharmaceuticals are made overseas majority in China or India semiconductors in in
00:49:08
my life I believe that the greatest economic threat to the world economy to the US economy more than the Arab oil
00:49:18
embargo that I lived through in the 70s when I was lined up with my parents to the at the pump to do odd even days
00:49:27
because of the oil embargo. The biggest threat is that 97% of the upper level precision chip
00:49:37
manufacturer, the advanced chip manufacturers is made in Taiwan and we need to bring a portion of that back to
00:49:44
the US. Uh same for steel, same for ship building, same for pharmaceuticals. So the interventions are all the in those
00:49:55
areas. Scott, as we wrap, I'd like to go back to one topic you spoke about at the
00:50:00
beginning, which is you've had to overcome a lot of Biden era difficulty and a lot of the groundwork, as you
00:50:08
said, will be seen in 26 and beyond. And I just want to give you a final moment to talk about those in two buckets.
00:50:15
Bucket number one is there's a lot of tax cuts that will hit starting January
00:50:19
1. And I think it would be good for people to understand what's coming. And then bucket number two, there's been
00:50:25
this incredible movement and energy around Trump accounts. And you even spoke about this yesterday about the
00:50:31
value of compounding and teaching people the financial literacy to understand what's possible for all these kids. And
00:50:37
I just want to give you a chance to talk about those two topics as we wrap. >> Couple points here. what we are going to
00:50:42
see next year that if you think about the the signature parts of the the tax bill I I think that the powerful the
00:50:52
most powerful parts uh had uh the immediate expensing for American business uh permanent for equipment
00:51:01
and then four or five year window for factories so we are seeing already seeing a capex
00:51:09
boom so 2025 was a capex boom. I think that is going to accelerate with all the trade deals we've done. I was just about
00:51:18
6 weeks ago in my hometown of Charleston, South Carolina, Boeing, the largest employer there, is increasing
00:51:24
their plant by 50% for the Dreamliners result of the trade deals, but it's also
00:51:31
part of the tax deal. So, we're going to continue seeing this capex boom that
00:51:36
turns into an employment boom. on the other side for working Americans. The president I I led the
00:51:45
administration's team up on the hill uh in terms of what was non-negotiable non-negotiable for the president and a
00:51:54
lot of traditional Republicans didn't like his campaign promises to working Americans and the president never
00:52:01
yielded on those. No tax on tips, no tax on overtime, no tax on social security,
00:52:06
deductibility of auto loans for Americanmade cars. So the the bill was done on July 4th. It's retroactive to
00:52:14
the beginning of the year for working Americans, retroactive to January 20th. uh for corporates. So, working
00:52:22
Americans, I I also have the honor of being the IRS commissioner, and I can see that we're going to have a gigantic
00:52:30
refund year in the first quarter because no one changed their working Americans did not change their withholding. So I I
00:52:38
think households could see depending on the the number of workers $1,000 $2,000 refunds they will change their
00:52:46
withholding schedule at the beginning of the year and they will get an automatic
00:52:51
increase the in real wages. So I think that's going to be a very uh I I think
00:52:57
that's going to be a very powerful combo of corporate and individuals. And then
00:53:04
the the these Trump accounts I believe are a gamecher and I think this will end up more than what he did for defense,
00:53:15
more than he did for strategic industries. When we look back in 50 years, I think this administration will
00:53:23
have saved or created the idea that everyone is an equity owner, that everyone has a stake in the market.
00:53:31
Right now, about 38% of Americans do not own equities either directly or through
00:53:38
some kind of a 401k or something. So by giving every child $1,000 at birth the for these accounts we are going to
00:53:48
increase financial literacy. We're going to increase people's optimism in the
00:53:52
market here at Treasury. We're going to do the a dramatic amount of financial
00:53:59
literacy, financial education. We're going to push that out to the schools. And I I think this idea of every
00:54:06
American learning h that money can make money for them that you know we we will close the gap over time. We'll go from
00:54:15
38% not owning equities that if this continues hopefully that can be zero and everybody gets a stake in American
00:54:24
prosperity that the American innovation that you all do and I I think it is going to you
00:54:32
when I look at sort of the the polling for young people in terms of their view of socialism, their their view of
00:54:39
capitalism, I I think that this is going to make you know every man Huey Long said, "Every man a king." I think this
00:54:47
is going to make a the every the man and woman a a a market participant. And I think it's fantastic. It I began the
00:54:58
announcement the other day. I said, you know, I've talked about parallel prosperity, Wall Street and Main Street.
00:55:04
This is the biggest merger in history because it is merging Main Street and Wall Street. And I I grew up in a small
00:55:12
town in South Carolina. The only thing I knew about Wall Street was something bad
00:55:16
had happened in 1929 and I was fortunate went to Yale and then u went to New York. But you you
00:55:25
shouldn't have to have that path that if you want to stay in your hometown but
00:55:29
participate in the market and learn a lot about it, this is the ultimate program for that. And what we're doing
00:55:36
is parents, family members, employers can add $5,000. Philanthropists like Susan Michael Dell are going to put
00:55:46
in $6.25 billion to top up the accounts. And then we're up to probably 20 states
00:55:54
that are going to also top up the accounts. Uh employers, we've got uh credit card companies,
00:56:02
banks that are already on board. and you're just going to keep pushing more money into these accounts. Americans are
00:56:09
the most generous people in the history of the world. We have never had a direct
00:56:14
way to get rid of the friction of philanthropy and give money directly to American children.
00:56:21
>> Yeah. Fantastic. >> A real watershed moment. Um, Secretary Bessant, we appreciate your leadership
00:56:27
and your service and for spending the time with us here today. You've been open and articulate as always and we
00:56:34
thank you for that. We appreciate it. For Chimath Jason, this is the uh the All-In podcast and thank you Secretary
00:56:41
Besson. >> Good. Well, it's an honor to serve the American people. So, thank you all.