What does Bessent's nomination by the US Treasury Secretary mean for US taxes and interest rates?

Experts say with Scott Bessent being elected as US Treasury Secretary, the question now is what he can do to curb consumers' cost of living (including prices and interest rates) and increase household income.

If Bezent's nomination is confirmed, the hedge fund Key Square Group's founder will actually become the federal government's chief financial officer, and the power exercised at a critical moment will impact Americans' financial lives.

As Trump's tariff plan, a major tax bill, and the 2025 debt ceiling suspension come to an end, Bezent will be a key economic speaker.

Stephen Myrow (Stephen Myrow), managing partner at Beacon Policy Advisors, said Beacon Policy Advisors's credit in financial markets could help the government push the idea of higher tariffs to investors — even if those costs are passed on. “Tariffs will translate into costs for consumers. The question is how much. Time will tell,” he said.

But Ed Mills (Ed Mills), a Washington policy analyst at Raymond James (Raymond James), said the timing and scope of the tariff increase is still unknown. Mills said that the damage caused by tariffs to consumers will depend on how much resistance Trump faces within the cabinet.

For Bezent, Trump, and Republican lawmakers, the bigger question is how much more they are prepared to expand on top of the $36 trillion treasury.

US bond yields have been rising since mid-September. Many people think this is the bond market's expectation for economic growth, as well as for deficits and inflation during Trump's second term. US Treasury yields are important to consumers, and these yields lay the foundation for interest rates on many types of credit.

Will Compernolle (Will Compernolle), a macro strategist at FHN Financial, wrote in a client report on Monday that the market “sees Bezent as a reliable choice and (believes) he will be a stable hand for the Treasury.”

Compagnall pointed out that US bond yields declined somewhat on Monday, and market participants viewed Bezent as a “fiscal hawk,” and it is expected that he will warn against expanding the budget deficit too aggressively.

Morningstar's senior US economist Preston Caldwell (Preston Caldwell) said that the Treasury Secretary's “indirect power to influence fiscal and economic policy may be more important than his direct power.”

Tax cuts: Bezent's confirmation hearing is worth looking forward to

First, let's start with taxes. If all goes well, Bezent will take over as finance minister next year, and Trump's 2017 tax cuts will expire. According to estimates by the US Tax Foundation, the bill will completely expire in 2026, and 62% of households will face tax increases. The Congressional Budget Office said that directly extending the current bill could increase the deficit by more than $4 trillion.

Of course, it is up to Congress and Trump to pass the new tax code. But Mike Crapo (Mike Crapo), a Republican senator from Idaho and chairman of the incoming Senate Finance Committee, stated in a statement that Bessent will be the “key economic negotiator” of the White House.

Crabo said he is looking forward to the confirmation hearing. Mills is also looking forward to that day. “Regarding specific tax policies, we will have to wait for confirmation hearings to know exactly what he wants to do,” he said.

Limited impact on consumer borrowing costs

Experts say that when it comes to consumer borrowing costs, Bezent will pay close attention to this issue, but there is a limit to what he can do. Trump made the cost of living issue a key topic during his campaign.

Cris DeRitis (Cris DeRitis), deputy chief economist at Moody's Analytics (Moody's Analytics), said the Federal Reserve's federal funds rate sets the benchmark for short-term interest rates, including a floating annual interest rate for credit cards. However, he pointed out that US bond yields set a benchmark for long-term credit such as mortgages, auto loans, and federal student loans. They also affect interest rates on long-term deposit notes (CDs) paid by banks, he added.

US Treasury yields have been rising since mid-September. That's why mortgage interest rates are starting to approach 7%, even though the Federal Reserve has begun to lower the benchmark interest rate.

Why are US Treasury yields rising? Delitis said that the main theory is that the bond market has seen an increase in Trump's chances of winning and has absorbed the inflationary effects that tariffs, more tax cuts, and large-scale expulsions of illegal immigrants may have.

The trend in US Treasury yields and prices is the opposite. Delitis said that Bezent's means of adjusting interest rates will be to adjust the combination of short-term and long-term debt used to finance the federal deficit.

Of course, in the huge US debt market, this is about difficult supply and demand issues.

Caldwell said that by adjusting the term mix of issued bonds, Bezent “can theoretically change the shape of the yield curve,” but this may have little impact, and if the Federal Reserve so wishes, it can easily be offset by adjusting its long-term asset portfolio (this effect).” The Federal Reserve is also a major buyer and seller of US bonds.

As one-year Treasury yields gradually surpass two-year and 10-year Treasury yields, Bessent said that current Treasury Secretary Yellen “borrowed more than $1 trillion in shorter-term bonds at a cost higher than historical standards, which distorts the treasury bond market.”

After Trump was elected President of the United States, Bezent wrote in the “Wall Street Journal” that “terminating debt and switching to more orthodox borrowing methods may push up long-term interest rates.”

Milo said that up to now, Bezent's knowledge of the bond market has only satisfied the government and interest-rate sensitive consumers. “The question is to what extent can the Trump administration use Bezent's credit to prevent an adverse reaction from the bond market.”

Mills said that Bezent's background slightly reduces this risk, which helps consumers buy loans even if they don't focus on the bond market.

Adopt “unconventional measures” to resolve the debt ceiling issue and play a role in other legislation

According to estimates by Henrietta Treyz, managing partner of Veda Partners, the US debt ceiling will need to be raised again around July next year. She said the GOP's plan might link raising the debt ceiling to passing the tax bill.

If these two issues are linked, Bezent and the Treasury may have to buy some time for lawmakers to take “unconventional measures” to delay the date of debt default. Delitis said that “unconventional measures” essentially allow the Ministry of Finance to strategically ease certain expenses in order to slow down the speed at which the government approaches the maximum borrowing limit.

Basent will also play an important role in the regulation of cryptocurrencies as the asset class becomes more prominent.

The Financial Crimes Enforcement Network (FinCEN), part of the Ministry of Finance, was one of the first federal regulators to regulate the digital asset industry. It requires crypto companies such as Coinbase to register transfer operations with regulators and comply with federal anti-money laundering laws and the Know Your Customer Act. In November of last year, Binance and its founder, Changpeng Zhao, were criminally prosecuted for violating these laws.

FinCEN is a key player in the government's fight against terrorism, drug trafficking, and other international crimes. Analysts say the new government is unlikely to be soft on the industry in enforcing these laws.

Andrew O'Neill (Andrew O'Neill), managing director of digital assets at S&P Global Ratings (S&P Global Ratings), said the new finance minister could be helpful to crypto companies as the architect of the government's financial regulation policies. This may be particularly important for stablecoins or cryptocurrencies that have their value pegged to the US dollar.

“Since the Republican Party controls Congress, we have reason to expect stablecoin legislation to advance fairly quickly,” he said. He also added that the finance minister is likely to be a key figure in negotiations between the government and Congress on this issue.

O'Neill said a legal, regulated stablecoin issuance framework could accelerate institutional adoption of cryptocurrencies.

The new Treasury Secretary will also play a central role in the Trump administration's efforts to reform Biden's Inflation Reduction Act, which provides generous tax credits to companies and consumers that produce and buy clean energy products, including a $7,500 tax credit that car buyers can apply for at points of sale for new electric vehicles. This may become the focus of the new administration.

Bezent has said that the bill needs to be scrutinized. He wrote in the Wall Street Journal: “America must reform the inflation-reduction act's distorting incentives, which encourage unproductive investment, and this investment must be maintained through lifetime subsidies.”

The Internal Revenue Service (Internal Revenue Service) is one of the most important implementers of these plans because it establishes eligibility rules for these credits, and the US IRS under Trump will be the target of intense lobbying by the energy industry and others.

Although the Inflation Reduction Act was passed without a Republican vote, analysts don't think the entire bill will be repealed.

BTIG analyst Isaac Boltansky wrote in a recent client report: “Efforts to repeal tax credits from the Inflation Reduction Act will be opposed by many parties, including constituencies supporting solar, wind, nuclear, hydrogen, hydropower, alternative fuels, and energy storage. The program benefits many corners of the market, which means there are a variety of supporters who will actively lobby to maintain it.”