Key Takeaways
- Treasury Secretary Scott Bessent said the U.S. economy is starting to “roll a bit,” acknowledging that financial markets have plunged amid uncertainty about President Donald Trump’s trade policies in recent weeks.
- Bessent said the economy was undergoing a “natural adjustment” to Trump’s efforts to reduce federal spending.
- Bessent dismissed fears about tariffs stoking inflation, saying the import taxes would be a one-time price adjustment.
President Donald Trump’s top economic advisor defended his controversial tariffs and acknowledged the economy may be starting to roll over as a “natural adjustment” to the president’s new economic policies.
“Could we be seeing that this economy that we inherited starting to roll a bit? Sure,” Treasury Secretary Scott Bessent said Friday on CNBC’s Squawk Box talk show.
Bessent said the financial market turmoil of the past few weeks is partly a hangover from President Joe Biden’s administration and partly a reaction to Trump’s efforts to cut federal spending.
“There’s going to be a natural adjustment as we move away from public spending to private spending,” he said. “The market and the economy have just become hooked. We’ve become addicted to this government spending. And there’s going to be a detox period.”
According to recent surveys, consumers and business leaders have lost some confidence in the future of the economy due to Trump’s erratic tariff policy stoking uncertainty and fears that tariffs will raise the cost of living once they’re fully imposed. Economists have recently downgraded economic forecasts, anticipating higher inflation and slower growth.
Financial markets are now pricing in a greater likelihood the Federal Reserve will be forced to lower borrowing costs this year to prevent the job market from collapsing. As of Friday morning, markets were betting on three cuts to the fed funds rate this year, up from one last month, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.
Trump’s Tariffs and Inflation
Bessent dismissed concerns about inflation. Inflation is, by definition, a persistent increase in prices on a wide variety of categories over time, whereas a tariff only raises prices once when it’s imposed.
“The tariffs are a one-time price adjustment,” he said. Â
Researchers, however, have found that tariffs can, in fact, push up inflation, especially if they’re imposed on “intermediate” products that are used to make other products. In February, researchers at the Federal Reserve studied the effects of Trump’s 2018 tariffs on China and found that they did stoke some inflation by causing ripple effects.
For example, U.S. boat manufacturers who bought motors from China had to find new suppliers and adjust their designs to alternative motors with different specifications. All this further drove up prices.
What Does It Mean For The Markets and The Economy
Bessent addressed forecasters’ questions about how far financial markets or the broader economy would be damaged before Trump backed down from his trade war policies. The questions have often been framed in stock market jargon of “puts” (a bet on prices falling) and “calls” (a bet on prices rising).
For example, analysts at Nomura this week wrote a commentary speculating where Trump’s “put” was—in other words, how far stock prices would have to drop before Trump de-escalated his tariff threats. Asked where this point was, Bessent said Trump was more focused on the economy than the stock market.
“There’s no put,” he said. “The Trump call on the upside is, if we have good policies, then the markets will go up.”