Bessent: Rate Cuts Don't Have To Break The Dollar
Bessent: Rate Cuts Don't Have To Break The Dollar
With rate-hikes increasingly back 'on the table' fort Fed Chair Warsh's 'regime change' last week, Treasury Secretary Scott Bessent says that cutting interest rates won't necessarily lead to a weaker dollar - arguing that "you can have a strong dollar when rates are being cut" because if the fed is cutting because inflation is falling, while the economy stays strong - capital keeps flowing in and the dollar holds. Of course, that all depends on why the fed is cutting...
Treasury Secretary Scott Bessent at the Economic Club of New York, on June 23. Photographer: Krisanne Johnson/Bloomberg
Speaking on CNBC's Squawk Box on Wednesday, Bessent said the U.S. can return to 3% growth this year, that inflation will fall back to the Federal Reserve's target now that the Iran conflict has eased, and that artificial intelligence is on track to at least double productivity - the recipe for maintaining a strong dollar while cutting rates. He also defended the administration's emerging Iran deal and its handling of frozen Iranian assets.
The comments followed a Tuesday night speech at the Economic Club of New York's America 250 gala, where Bessent set out a five-part framework he calls economic statecraft, which he defined as the use of American economic power "in service of our sovereignty."
Citing Hamilton's view that a nation "ought to endeavor to possess within itself all the essentials of national supply," he argued that decades of chasing the lowest cost had left the U.S. dependent in areas that matter: semiconductors, AI, quantum computing, advanced manufacturing, shipbuilding, critical minerals and pharmaceuticals. A supply chain, he said, can no longer be judged on price alone, but on whether it survives a crisis, withstands coercion and keeps running through a pandemic or a cyberattack.
Bessent said market access is now conditional, carrying "non-negotiable obligations" for partners that want U.S. capital and the dollar's plumbing while keeping their own markets closed. He also argued that whoever writes the standards for digital assets, stablecoins and tokenized finance will shape the century, and that those rules should be written in Washington. On financial leadership, he said there is "nothing accidental about the dollar's place in the world," calling reserve-currency status both an advantage and an obligation to police the system. The fifth principle was that the payoff is supposed to reach households, not only trading floors.
Wednesday morning, Bessent leaned on AI as the driver - citing the late Alan Greenspan's read of the 1990s and suggesting the current buildout, with hyperscalers such as Meta and Google set to spend on the order of $750 billion, could at least double productivity again. He credited financial deregulation with unlocking roughly $3 trillion in lending capacity, and said the deficit-to-GDP ratio could also carry "a three in front of it" by the end of President Trump's term, though he would not commit to progress this year.
On the Fed, Bessent said he is confident in Fed Chair Kevin Warsh and praised the move away from rigid forward guidance and dot-plot projections. He said the president understands that "the bond market has taken out more governments than howitzers," a warning that if inflation runs hot and the Fed hesitates, the bond market will tighten on its own.
The newest item was on Iran. Once Tehran's frozen assets are released under the interim deal, Bessent said, the Treasury will oversee them, probably through an escrow account run out of Doha, and "recycle" a large share into U.S. food and medicine, including corn, wheat, soybeans and pharmaceuticals. The arrangement turns a concession critics dislike into a farm-state selling point.
He also tied housing affordability to lower rates and more supply, blaming COVID-era mortgage lock-in for low turnover. The timing fit: Trump was set to sign the 21st Century Road to Housing Act the same day.
Dollar Dominance 'Essential'
According to Bessent, the dominance of the US dollar is "essential," telling CNBC: "if you look, the new Venezuela... the dollar is going to be the centerpiece of their trade... We're seeing in the Iranian negotiations, the Iranians will be invoicing in dollars. Everything we are doing is pushing the dollar back... we're reinforcing it."
The latest move in the dollar came after the Fed held its benchmark rate at 3.5% to 3.75%, dropped its bias toward future cuts and signaled that a hike this year is possible, causing two-year yields to jump to their highest in more than a year.
Let's see if Bessent's prediction of - "Now that we're on the other side of it, prices come down" pans out. Energy shocks have a history of feeding into wages, services and expectations before they fade. The word transitory did real damage in 2021 and 2022 because it was obvious bullshit to cover for the fact that Biden-era policies amplified the damage from so much liquidity during Covid. Bessent may be right that the Iran spike proves temporary. The risk is that he is right about gasoline and wrong about the stickier core that tends to follow it.
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