Bessent Is Stealing a Playbook He Didn’t Even Like

(Bloomberg Opinion) — Before he became President Donald Trump’s Treasury secretary, Scott Bessent openly criticized his predecessor Janet Yellen for issuing more short-dated debt — a move he characterized as fiscally imprudent and at odds with the inflation-fighting goals of the Federal Reserve. Now that he’s in charge, Bessent has continued Yellen’s policies and said that any move to boost the share of longer-term Treasury securities is “a long way off.” He delivered his clearest explanation for the apparent double standard in an interview with Bloomberg Television on Thursday.

As he put it, the Treasury still plans to increase the share of longer-dated securities eventually, but it’s going to depend on the market and economic environment.

Here’s Bessent (emphasis mine):

Over the medium term it’s going to play out as it becomes clear that everything that President Trump’s administration is doing will be disinflationary. We’re going to bring down energy costs. We’re going to bring down regulation. What DOGE is doing in terms of cost cutting. And I think once the Tax Cuts and Jobs Act is made permanent, then we can have a revenue increase, cost decrease.

Pressed for a specific timeline, the former hedge-fund manager hedged:

It’s going to be path dependent. We’re still seeing sort of the residual Bidenflation that’s still coming through, and I think as… the market starts to realize what we’re doing and inflation starts to drop, then we will see. So, it’s going to be path dependent. That’s the eventual goal, but I’m not going to signal it now.

In a nutshell, Bessent has an optimistic forecast for disinflation and bond-market performance under the Trump presidency, so he’s happy to kick the can.

The maturity schedule of US debt issuance may seem technocratic, but it’s ultimately one of the most powerful tools at the disposal of the new Treasury secretary. Issue too many bonds and already jittery investors could demand higher yields that push up mortgage rates and a large number of other household and business borrowing costs. At a time when the government’s interest expense is greater than military spending, that could also cause debt and deficit concerns to spiral. Meanwhile, the Fed has been allowing maturing Treasury securities it owns to roll off its balance sheet through so-called quantitative tightening, effectively making Bessent’s job even harder.

Of course, all this is ultimately similar to the situation in which Yellen found herself, and Bessent offered little sympathy at the time. Yellen clearly thought it was imprudent to flood the market with longer-term bonds and lock in borrowing costs when they were already high. Bessent’s attempts to explain his position only reinforces the hypocrisy. What’s more, it’s particularly hard to justify from a government that is pursuing a reckless tariff policy that could boost prices and is threatening to expand the national debt by making permanent the expiring provisions of the Tax Cuts and Jobs Act of 2017.

Notably, Yellen actually had some success at pushing the US’s debt repayments further into the future, though that was in the early years of the administration. In the latter years, Yellen’s policies were defensible because they were in line with the consensus forecasts for inflation and interest rates at the time. Bessent’s are not. 

In mid-2023, when Yellen was carrying out her policy, the typical prognosticator in the private sector and the Fed thought inflation — measured by the personal consumption expenditures deflator — would be essentially back to target by the end of 2025. Now, professional forecasters think it could take years longer to get back to 2% inflation. 

Meanwhile, consumer inflation expectations that seemed well-anchored in 2023 and 2024 appear to be increasing. The University of Michigan’s measure of the median expected annual change in prices during the next five to 10 years is 3.3%, the highest since 2008, underscoring the risk that faster inflation could become a self-fulfilling prophecy for households and businesses.

In fairness to Bessent, bond yields have climbed in recent months for many reasons, not all of which reflect poorly on the administration. In 2023 and 2024, yields may have been partially compressed by the market’s misguided view that recession odds were high. The recent increase of longer-term yields seems to partially reflect an acknowledgement that the growth outlook is strong.

Trump’s own policies seem to be also fanning consumers’ inflation concerns. If implemented at scale, new tariffs are likely to increase prices, at least on a one-time basis — and maybe more if there’s a cycle of retaliation. On top of that, the $4.5 trillion tax cut that House Republicans hope to push through with White House support could exacerbate market concerns about the yawning budget deficit. Adding to the absurdity of the policy agenda, Trump has recently thrown his support behind the idea of a DOGE “dividend”: essentially sending American taxpayers direct payments that would represent a fraction of the money  supposedly saved by Elon Musk’s Department of Government Efficiency. 

That last part is laughable in more ways than one. First, DOGE looks like an effort to distract from the fact that America has a large and alarming deficit that can only be seriously addressed through hard choices. (To realistically get the budget in order, Americans will need to learn to live without tax breaks or reform politically sensitive and systemically important entitlement programs — probably both. But the Trump government is focusing the nation’s attention on Musk’s sideshow.) As of Wednesday, DOGE claimed to have saved $55 billion, but a line-item accounting of the purported savings suggests the real number is closer to $8.6 billion. The dividend idea would make true deficit reduction harder and, depending on those payouts, may encourage consumption at a time when inflation isn’t yet dead.

Bessent has slick answers for these concerns. He says that you have to take a holistic view of the Trump administration’s policies, which he claims will bring down energy costs by encouraging production and unleash the supply-side of the economy by reducing regulations. He also claims that non-inflationary growth and more efficient government will lead to deficit reduction. If it sounds too good to be true, that’s probably because it is.

To be clear, it’s possible that Trump and Bessent will get lucky with inflation and borrowing costs. When Trump took office in January 2025, PCE inflation was just 2.6% and favorable base effects made it probable that the gauge would drop farther this year toward the 2% goal. Trump and Bessent inherited a golden opportunity to oversee the defeat of inflation, and all they have to do is sit on their hands. Tariffs and tax cuts threaten that trajectory, but if they’re lucky, they may find that the disinflationary momentum established in 2023 and 2024 can withstand their misguided meddling. Bessent is entitled to have an optimistic forecast, just as Yellen was, but the hypocrisy is as glaring as ever. 

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Jonathan Levin is a columnist focused on US markets and economics. Previously, he worked as a Bloomberg journalist in the US, Brazil and Mexico. He is a CFA charterholder.

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