- 2024-08-30
- News
The New Treasury Secretary: What Implications for the U.S. Economy?
Nominating Beisent as the Treasury Secretary, what does this new CFO mean for the U.S. economy?
If Beisent is successfully elected, with the tariff plan, significant tax legislation, and another debt ceiling approaching in 2025, Beisent will become a key economic spokesperson. Preston Caldwell, a senior U.S. economist at Morningstar, stated that the Treasury Secretary's indirect power in influencing fiscal and economic policies may be more important than his direct power.
Firstly, on the issue of tariffs, Stephen Myrow, managing partner at Beacon Policy Advisors, said that Beisent's credibility in the financial market could help the government persuade investors to increase tariffs, even if these costs are passed on. Tariffs will impose costs on consumers; the question is how much.
Secondly, for Beisent, a larger issue is how much they are prepared to allow the national debt, which currently stands at $36 trillion, to increase. Investors view Beisent as a "fiscal hawk," and he has previously warned against over-expanding the budget deficit.
Furthermore, Beisent will also play a significant role in interest rate adjustments, cryptocurrency, and many other areas.
Tax Cuts: Pay attention to Beisent's testimony
Starting with taxes, Beisent will take up this position next year, and the 2017 tax cut bill will expire. The Tax Foundation estimates that in 2026, the bill will fully lapse, and 62% of households will face higher taxes. The Congressional Budget Office stated that directly extending the current bill could increase the deficit by more than $4 trillion.
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The new tax law will depend on Congress, but Idaho Republican Senator Mike Crapo, the incoming chairman of the Senate Finance Committee, said that Beisent will be the "key economic negotiator" for the White House, and he looks forward to the confirmation hearing. Specific tax policies may have to wait until the hearing to get a clear understanding of Beisent's thoughts.
Little impact on interest rates
On the issue of consumer borrowing costs, Beisent will be cautious, but analysis suggests that there is little he can do.
Cris DeRitis, deputy chief economist at Moody's Analytics, said that the Federal Reserve's federal funds rate sets the benchmark for short-term interest rates, including the floating annual interest rates on credit cards. However, he pointed out that U.S. Treasury yields set the benchmark for long-term credit such as mortgage loans, auto loans, and federal student loans. They also affect the interest rates paid by banks on long-term certificates of deposit (CDs).
Since mid-September, U.S. Treasury yields have been rising, and despite the Federal Reserve starting to cut benchmark interest rates, mortgage rates have begun to approach 7%. Investors are concerned about inflation that may be brought about by tariffs, further tax cuts, and large-scale deportation of undocumented immigrants.
DeRitis said that Beisent's means of adjusting interest rates is to adjust the combination of short-term and long-term debt used to finance the federal deficit. But in the vast $27 trillion Treasury market, this is a tricky supply and demand issue.
Caldwell said that by adjusting the maturity mix of issued bonds, Beisent could theoretically change the shape of the yield curve. But this may not have much impact, as the Federal Reserve, which is also a major buyer and seller of U.S. Treasury bonds, can easily offset it by adjusting its long-term asset portfolio if it wishes.
Previously, Beisent criticized the current Treasury Secretary Yellen for distorting the Treasury market by borrowing more than $1 trillion in short-term debt than historical standards, which is more expensive.
Analysis suggests that the question is to what extent the government can use Beisent's credibility to prevent adverse reactions in the bond market, and Beisent's background slightly reduces this risk.
"Unconventional" measures to address the U.S. debt ceiling and play an important role in cryptocurrency regulation
In addition, there is the issue of the U.S. debt ceiling. Henrietta Treyz, managing partner at Veda Partners, expects that the debt ceiling will be raised again around July next year, and the Republican plan may be to link the increase in the debt ceiling to the passage of the tax bill.
Treyz said that if these issues are linked, Beisent and the Treasury may need to take "unconventional" measures to buy some time for lawmakers to delay the default date. DeRitis said that extraordinary measures are essentially about the Treasury strategically easing certain expenditures to slow down the pace at which the government approaches the borrowing limit.
As cryptocurrencies become increasingly important, Beisent will also play a significant role in the regulation of the industry.
Andrew O'Neill, Managing Director of Digital Assets at S&P Global Ratings, said that the new Treasury Secretary, as a policymaker for government financial regulation, may be helpful to cryptocurrency companies, which could be particularly important for stablecoins or cryptocurrencies pegged to the U.S. dollar.
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