Treasury Secretary Bessent Outlines Economic Vision: Fed Rates, Crypto Reserves, and Tariff Strategy

Key Takeaways

  • US Treasury Secretary Scott Bessent indicated that economic models suggest the Federal Reserve's neutral interest rate is lower, potentially requiring a 1.5 percentage point cut from current levels. He clarified he is not calling for a series of Fed rate cuts, nor is he dictating Fed policy.
  • The Treasury Department will stop selling its Bitcoin holdings and plans to utilize confiscated crypto assets for its reserves, which are currently valued between $15 billion and $20 billion. The Treasury will not be buying new crypto.
  • Bessent signaled that pharmaceutical tariffs are a key area to "watch this space," anticipating that tariffs alone could push the deficit ratio into the 5% range and potentially generate over $300 billion in revenue.
  • On international affairs, Bessent described Trump-Putin talks as a "precursor" for a second round and urged the European Union to take decisive action on Russia, stating it's "time for EU to put up or shut up."

US Treasury Secretary Scott Bessent delivered a comprehensive overview of the administration's economic and financial policies today, touching on monetary policy, cryptocurrency strategy, trade tariffs, and international relations. His remarks offered insights into the Treasury's objectives and the broader economic outlook.

Monetary Policy and the Federal Reserve

Secretary Bessent stated that models indicate the neutral interest rate is lower, suggesting the Federal Reserve's benchmark rate should be approximately 1.5 percentage points lower than its current level. While he pointed out these model implications, Bessent emphasized he was not explicitly calling for a series of Fed rate cuts or dictating the central bank's actions. He noted that if more accurate labor market data had been available earlier, the Fed might have initiated rate cuts in June or July.

Cryptocurrency Strategy and Reserves

In a significant announcement for the digital asset market, Bessent confirmed that the US Treasury will cease selling its existing Bitcoin (BTC) holdings. Instead, the department plans to build its crypto reserves by utilizing confiscated assets, rather than actively purchasing new cryptocurrency. He estimated the current value of these Bitcoin reserves to be between $15 billion and $20 billion. This move aims to maximize value for the taxpayer and retain gold as a store of value, with no plans to revalue US gold holdings.

Tariffs and Trade Policy

Bessent indicated that the administration is closely examining pharmaceutical tariffs, advising stakeholders to "watch this space." He projected that tariffs alone could reduce the deficit ratio into the 5% range and generate "substantially more than $300 billion" in revenue, with August and September serving as crucial test months for tariff revenue collection. He also commented that China has "backed themselves into a corner on chips," suggesting ongoing pressure in the technology trade sphere.

The Treasury Secretary also noted that the administration is "examining all options" regarding the sale of stakes in Fannie Mae (FNMA) and Freddie Mac (FMCC), with an additional objective to "damp MBS-Treasuries spread."

International Relations and Geopolitical Stance

On the geopolitical front, Bessent characterized recent Trump-Putin talks as a "precursor" for a second round of discussions. He issued a strong call to action for the European Union regarding Russia, urging them to "put up or shut up" and coordinate on secondary sanctions. Bessent highlighted that Europe has been purchasing India-refined Russian oil and expressed uncertainty about whether Putin would agree to a cease-fire.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. We are not financial professionals. The authors and/or site operators may hold positions in the companies or assets mentioned. Always do your own research before making financial decisions.
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