Bessent is ready for his next mission: Make Fred great again
Scott Bessent is quite content in his role at the Treasury Department, and honestly, who wouldn’t be? Tax cuts are rolling out, trade agreements are reshaping economies worldwide, and deregulation is in full swing.
But come next summer, the focus of economic policymaking is set to shift from the Treasury’s financial levers to the essential workers at the Federal Reserve. That’s when Bessent will be crucial.
He’s already delivering results. Under his guidance, the Treasury has revamped incentives, altered global capital flows, and sidestepped the bureaucratic hurdles that stifled investment in the past. The next challenge is to ensure this framework lasts. This involves restoring monetary policy as a growth tool and ensuring the Fed operates effectively alongside the broader economic strategy.
Japan’s Sign
Long before his time in government, Bessent provided significant insight regarding Japan’s financial issues. While some might think that low rates are endlessly appealing, Bessent pointed out how breaking credit channels can make those low rates counterproductive. With Japanese savers not seeing returns and banks struggling with margins, monetary policy seemed stuck. The solution? Thoughtful rate hikes to restore balance. As Bessent noted, interest income and credit growth could resemble a “Bernanke-style helicopter cash drop.”
This was meant to guide, not provoke. He recognized that monetary policy hinges on balance sheets: who’s involved, who bears the cost, and whether lending can be productive. When the Bank of Japan recently ended its negative rate policy, it reflected Bessent’s reasoning.
His connections with the U.S. are evident. If the aim is to stimulate real investments, foster stable money, and improve credit transmission, the Fed needs leadership that understands how policy affects banks, households, and capital markets in practice, rather than just theoretically. Bessent has already shown he can deliver. His methods focus on incentives and mechanisms, not just on theory. That’s precisely what the Fed needs.
Re-providing credits
Bessent’s idea of “reevaluating the economy” isn’t just philosophy; it signifies a shift in approach. This becomes especially relevant within the Federal Reserve. Previous administrations have tried to use the Fed as a soft regulator, relying on guidance and hypothetical tests to steer capital away from politically vulnerable sectors. The outcome? A quiet veto against energy and heavy industries by financial actors driven more by pressure than legal requirements, all convoluted by social engineering agendas.
Bessent plans to change that. His principle is straightforward: Focus on risk pricing, not picking winners. If a business is deemed reliable, banks should feel free to lend without second-guessing based on current political trends. His leadership would steer the Fed back to its foundational role—implementing capital requirements, checking resilience, and keeping systems running smoothly. No more hidden taxes from pilot initiatives or transient scenarios, just straightforward evaluations.
This approach will pave the way for a real investment surge. With a stable reserve framework, effective discount windows, and a supervisory culture that values market signals, banks will feel confident in extending credit to energy producers, infrastructure developers, manufacturers, and entrepreneurs. It’s about reassessing credits rather than subsidizing favored industries, focusing on price signals and clearing ideological hurdles.
Kudlow’s Continuity
If Bessent transitions to the Fed, someone will need to step in to manage the financial portfolio. The clear candidate is Larry Kudlow. He’s familiar with the job from his time as NEC director and knows the policy landscape inside out. Plus, he’s the most effective communicator regarding the Trump-era economy.
Kudlow simplifies supply-side economics for everyone. He explains how tax cuts encourage investment and lead to increased wages and overall growth. He calls it the blue-collar boom, which, frankly, is spot on. As midterms approach, the administration requires someone who can present economic arguments directly to the public, regularly and enthusiastically. That’s where Kudlow shines. He arrived at the Treasury Department ready for success, with policies in motion but needing clear communication.
Correction
We find ourselves in a new phase of the Trump economy. Initially, progress was made through the Treasury Department with tax cuts, tariffs, regulatory reforms, and global interactions. Now, the baton has passed to the Fed. It’s crucial to have a chair who can re-ground monetary policy, restoring market credibility and translating balance sheet strategies into actions that promote growth. That’s been Bessent’s focus his entire career, and his time at the Treasury has sharpened his insights.
As for Jerome Powell, his term as chair wraps up in May. He might stay on the board legally, but he shouldn’t. Doing so risks politicizing the Fed, creating dissent, and undermining the incoming leader’s legitimacy. It’s customary to resign, and Powell should adhere to that tradition.
This is the moment for clarity. The Fed must refocus its priorities. The economy needs credibility, not performative moves. The administration requires a leader who comprehends how growth is achieved, the potential pitfalls of policies, and the significance of incentives over catchy slogans. That’s Bessent.
