Scott Bessent, the new US Treasury Secretary under Trump’s administration, has a monster-sized mission. He’s been handed an economic puzzle that could break all financial markets and the entire global economy if he screws up.
Scott’s job is to keep bond yields down, cut down on federal spending without triggering a recession, and somehow deal with the chaos of oil prices, a volatile dollar, and inflation. So Scott’s whole strategy leans heavily on Elon Musk’s Department of Government Efficiency, also known as D.O.G.E. Without Elon and his efficiency freaks (as he calls them), Scott’s vision could crumble.
According to a Bloomberg report, Scott’s first quarterly funding announcement stayed in line with Janet Yellen’s strategy, focusing on issuing short-term bonds. Analysts expected him to move toward long-term bonds, but he didn’t. Short-term borrowing is Scott’s way of buying time, but the bond market won’t wait forever.
Oil prices are a problem Scott can’t ignore
President Donald Trump’s “drill, baby, drill” campaign slogan promised to bring inflation down by boosting oil supply, but oil doesn’t behave the way most people think. Cheaper oil doesn’t directly lower real borrowing costs.
Traders in inflation-protected securities (TIPS) use energy futures to hedge their bets, which skews how inflation expectations play out in bond markets. Scott knows that even if oil prices drop, it won’t be enough to fix his problems.
According to data from Absolute Strategy Research, energy now makes up a much smaller share of overall production costs. Even if oil prices doubled tomorrow, it wouldn’t cause the same economic disaster seen during the energy crises of the 1970s.
But pushing oil prices down won’t be easy. Trump’s plan to refill the Strategic Petroleum Reserve will boost demand, driving prices up instead of down. And OPEC won’t sit by and let the US flood the market.
Scott puts his faith in Elon Musk’s D.O.G.E team
Cutting federal spending is where things get messy. According to data from BCA Research, federal spending needs to be reduced by 3.6% to stabilize the debt-to-GDP ratio. That’s a huge cut, and Congress won’t approve it without a fight.
Elon’s D.O.G.E team is targeting waste across multiple departments and making aggressive cuts, but if they fail, Scott would be staring down a financial and economical meltdown. And if Elon cuts too much, he risks triggering a recession. If he cuts too little, we’re gonna face a bond market riot.
Anyway, Scott is also steering Trump away from interfering with the Federal Reserve. Trump has said time and time again that he should have more control over interest rate decisions, but at his Senate confirmation hearing, Scott said he knows that would send markets into a panic.
Instead, he’s pushing for a more strategic approach—replacing current Fed Chair Jerome Powell with someone the market respects. Former Fed governor Kevin Warsh is the top pick, because according to Scott, he’s experienced, market-friendly, and “unlikely to rock the boat.”
Meanwhile, just earlier, president Trump ordered the US Treasury to stop producing pennies, via a post on Truth Social that reads: “For far too long the United States has minted pennies which literally cost us more than 2 cents. This is so wasteful! I have instructed my Secretary of the US Treasury to stop producing new pennies. Let’s rip the waste out of our great nations budget, even if it’s a penny at a time.”
This of course comes amid D.O.G.E’s tensions with the Treasury after he audited and was given access to its data. But unfortunately, a federal judge ruled on Saturday to ban Elon and his team from accessing the Treasury’s data ‘temporarily.’
Scott also faces a dollar problem. Historically, oil prices and the dollar move in opposite directions. When oil prices crash, the dollar tends to rise. It happened in 2014 when OPEC flooded the market, and it happened again in the 1980s after the Iran crisis.
But a strong dollar makes imports cheaper, which helps fight inflation, but it also makes US exports less competitive. Trump’s economic vision relies on boosting exports, so you can see why Scott can’t afford a dollar that’s too strong.
