Trump Treasury pick Bessent backs Fed independence, dollar, sanctions on Russian oil

WASHINGTON: President-elect Donald Trump's pick for Treasury secretary, Scott Bessent, said on Thursday (Jan 16) that the dollar should remain the world's reserve currency, the Federal Reserve should stay independent, and that he is ready to impose tougher sanctions on Russia's oil sector.

Bessent, testifying at a Senate Finance Committee confirmation hearing, underscored an urgent need to extend Trump's 2017 tax cuts due to expire at the end of this year, to avoid a US$4 trillion tax hike that could crush the US economy.

"If we do not renew and extend, then we will be facing an economic calamity," Bessent said. "We will see a gigantic middle-class tax increase."

Bessent, a hedge fund manager and founder of Key Square Capital Management, voiced support for Trump's plans to impose steep tariffs, saying they would combat unfair trade practices, raise revenues and increase US negotiating leverage, including on non-trade issues.

Bessent said that US sanctions against Russia's oil sector have been too weak, partly because the Biden administration was too concerned about increasing prices at the same time it was constraining US oil output. Increased US oil production would allow for tougher sanctions on Russian oil majors, he said.

"I think if any officials in the Russian Federation are watching this confirmation hearing, they should know that if I'm confirmed, and if President Trump requests as part of his strategy to end the Ukraine war, that I will be 100 per cent on board with taking sanctions up - especially on the Russian oil majors - to levels that would bring the Russian Federation to the table," Bessent said.

Bessent coolly fielded questions ranging from US competition with China, to child tax credits, and did not stray from answers consistent with previous Republican Treasury nominees.

FED INDEPENDENCE

Some analysts had said markets would be scrutinising Bessent's comments keeping the Federal Reserve independent given Trump's frequent disagreements over the US central bank's interest rate decisions and his own comments about a "shadow" Fed chair. But he came down firmly on the side of Fed monetary policy independence, adding that Trump would still make his views known.

"I think on monetary policy decisions, the FOMC should be independent," Bessent said, referring to the Fed's rate-setting panel, the Federal Open Market Committee.

Despite Trump's longstanding complaints about a strong dollar, Bessent said: "Critically - critically - we must ensure that the dollar remains the world's reserve currency."

Bessent also rejected the idea of a central bank digital currency for the Fed, saying that the dollar's wide use and security made this unnecessary.

He said he was open to the idea of creating a US sovereign wealth fund, but said the US needed to get control over short-term deficit growth first.

The high level of US deficits means that there is less capacity to borrow heavily to combat a crisis, he said, citing examples of the 1930s Great Depression, World War II and the recent COVID-19 pandemic.

"Treasury - along with the whole of government and Congress - has used its borrowing capacity to save the union, save the world, and save the American people," Bessent said. "What we currently have now, we would be hard pressed to do the same.”

In prepared remarks released on Wednesday night, Bessent laid out a vision for "a new economic golden age" that included prioritising strategic investments that grow the US economy and making permanent Trump's 2017 individual and small business tax cuts that are due to expire on Dec 31, 2025.

"We must secure supply chains that are vulnerable to strategic competitors, and we must carefully deploy sanctions as part of a whole-of-government approach to address our national security requirements," Bessent also said in the remarks.