By David Morgan

WASHINGTON (Reuters) – Just days before Donald Trump returns to power, some of his Republican allies in the U.S. Congress are warning that the president-elect’s aggressive tax-cut agenda could fall victim to signs of worry in the bond market.

At a closed-door meeting on Capitol Hill, Republicans in the House of Representatives aired concerns that the estimated $4 trillion cost over the next 10 years of extending the 2017 Trump tax cuts could undermine the U.S. government’s ability to service its $36 trillion in debt, which is growing at a pace of $2 trillion a year.

“The buyers of our bonds are getting nervous that we’re at the point that we cannot pay it back. That affects every one of us,” Republican Representative Ralph Norman told reporters. “If we can’t sell bonds, guess what? We’re in a ditch.”

The U.S. bond market has become ultra-focused on what the incoming Trump administration and its allies in Congress may deliver as they strive to enact a wide-ranging Trump agenda that also includes the deportation of immigrants living in the country illegally and new tariffs on imports.

Congress also faces a mid-year deadline to address the nation’s debt ceiling or risk a default, after rejecting a Trump attempt last month to get lawmakers to do so before he takes office on Monday.

Longer-dated U.S. Treasury yields jumped to their highest levels since November 2023 this week, with the 10-year bond hitting a high of 4.79%. It traded lower to 4.66% on Wednesday afternoon.

“Congress has to reduce the deficit,” Republican Representative Andy Barr said. “The bond market is telling Congress that if we don’t get our fiscal house in order, everybody’s mortgage rates, everybody’s credit card rates, everybody’s auto loan rates, are going to continue to go up.”

Democrats warn that extending the Trump tax cuts will mainly benefit corporations and the wealthy, while further undermining the nation’s fiscal position.

Democratic Senator Chris Murphy described Trump’s repeated comments about his desire to take over Greenland, Canada and the Panama Canal as a distraction from the implications of the tax cuts.

“They’re going to try to distract the press and the public and the information ecosystem away from the thievery that is going to happen with this massive tax cut,” Murphy said.

Trump has tapped Tesla (NASDAQ:TSLA) Chief Executive Elon Musk, the world’s richest person, to find ways to sharply cut federal spending. Musk set an initial goal of $2 trillion per year that he this month called a “long shot,” saying that $1 trillion may be more achievable.

Even that lower figure represents almost one-sixth of all federal spending, a goal that will be very difficult to meet given that Trump has ruled out cutting the popular Social Security and Medicare retirement programs, that Republicans typically resist cuts to defense spending, and that interest payments alone cost the nation $1 trillion per year.

In recent days, House Republicans have begun circulating a list of potential spending cuts totaling as much as $5.7 trillion over a decade – nearly 10% of current spending levels – that includes spending on Medicaid and the Affordable Care Act.

Republicans in the House and Senate expect to use a parliamentary tool known as reconciliation to move legislation containing the Trump agenda through Congress while circumventing Democratic opposition and the Senate’s 60-vote filibuster for most bills.

Barr said such a reconciliation package would need to contain a combination of economic stimulus and spending cuts credible enough to persuade investors that Congress is addressing the U.S. fiscal woes.

“Will this reconciliation bill actually reduce the deficit? If they think that it will, that has the very real potential of lowering Treasury yields,” Barr said.

“What we need to say to the American people is, look, this is not austerity. This is not painful cuts. This is about lowering your mortgage payment.”

(Reuters) – The U.S. Department of Commerce on Thursday announced $1.4 billion in final awards to support the next generation of semiconductor advanced packaging.

By Lawrence Delevingne, Yoruk Bahceli, Davide Barbuscia and Dhara Ranasinghe

NEW YORK/LONDON (Reuters) – When Bill Clinton began his first term as president in 1993, he faced a challenge to his authority from an unexpected adversary: bond traders. Low taxes and high defense spending over the prior decade had contributed to U.S. debt doubling as a share of economic output.

Clinton and his advisers worried that ‘bond vigilantes’ – so called because they punish governments’ profligacy – would target the new Democratic administration. A run on U.S. Treasury bonds, they feared, could sharply raise borrowing costs, hurting growth and jeopardizing financial stability. A frustrated Clinton was forced to make the unpopular decision to raise taxes and cut spending to balance the budget.

“He went away pretty disgusted with the idea that here he had just won an election by a pretty nice margin in a difficult three-way race, and now he was subservient to a bunch of bond traders,” said Alan Blinder, one of Clinton’s closest economic counselors who later served as the vice chair of the Federal Reserve. “A lot of us are wondering if the bond market vigilantes are going to come back for a second chapter.”

As Donald Trump takes office on January 20, concerns over bond vigilantes in the United States have resurfaced, according to several market experts. And this time, the economic indicators are even more alarming, they said.

The U.S. debt-to-GDP ratio is pushing 100%, double the level in Clinton’s time. Left unchecked, by 2027 it’s projected to exceed the records set after World War II, when the government borrowed heavily to fund the war effort.

Bond yields, which move inversely to prices, have been climbing. The yield on 10-year U.S. Treasury bonds has risen more than a percentage point from a September low, a whopping increase for a measure where even hundredths of a percent matter.

Like Clinton before him, Trump now faces the prospect of bond vigilantes becoming a potent check on his policy agenda, according to several former U.S. and foreign policymakers who faced market turmoil while in office.

Reuters interviewed nearly two dozen policymakers, economists and investors – including Trump advisers, a former Italian prime minister and former Greek and British finance ministers – and examined bouts of bond market routs around the world since the 1980s to assess the risk of turbulence after Trump takes office. 

The review found several indicators watched by bond traders are flashing red. U.S. federal debt has increased to more than $28 trillion, from less than $20 trillion when Trump took office in 2017. Debt is also piling up in other countries, with the world’s total public debt expected to cross $100 trillion for the first time in 2024, leaving investors nervous.

“There’s a risk of the bond vigilantes stepping up,” said Matt Eagan, portfolio manager at Loomis (LON:0JYZ) Sayles, a fund manager with $389 billion under management. “The unanswerable question is when that would occur.”

The experts believe Trump has some cover, thanks to the dollar’s status as the global reserve currency and the Fed’s now well-established ability to intervene in markets in moments of crises, which means there are always buyers of U.S. debt.

Other nations may be at more imminent risk, partly because of worries that Trump’s trade policies would dampen their growth, the experts said. Some of Europe’s biggest economies, including Britain and France, have come under pressure in bond markets recently. 

The Reuters analysis of past crises showed it’s hard to predict what will spark a bond market selloff. Part of the problem is market signals are open to interpretation. But once panic sets in, conditions can quickly spiral out of control, often requiring sizable intervention to re-establish stability.

Robert Rubin, Clinton’s Treasury Secretary and a former co-chairman of Goldman Sachs, said the bond market “could very quickly make it very difficult” for Trump to do what he wants if a steep rise in interest rates triggered a recession or financial crisis. “Unsound conditions can continue for a long time until they correct, rapidly and savagely. When the tipping point might come, I have no idea,” he said.

Trump has said he wants to lower taxes and stimulate economic growth, but many of the policymakers, economists and investors who spoke to Reuters viewed with skepticism his promises for draconian cuts to government spending and pay for his plan with trade tariffs.

Combined with worries that Trump might weaken U.S. institutions like the Fed, these people said, the Republican’s policies could provoke a violent market reaction that would force him to reverse course. Stephen Moore, a longtime Trump economic adviser, singled out the risk of “massive tariffs” that could harm global growth as one possible trigger.

Anna Kelly, a spokesperson for Trump’s transition team, said in a statement: “The American people re-elected President Trump by a resounding margin, giving him a mandate to implement the promises he made on the campaign trail, and he will deliver by ushering in a new Golden Age of American Success on day one.”

She did not answer specific questions about current bond market conditions and the risk of a flare-up from Trump’s plans.     

BETTING ON TAX CUTS

Economist Ed Yardeni, who coined the term bond vigilantes, said Trump had bought some time by promising to cut spending and naming market-savvy people to his team such as his Treasury Secretary pick, Scott Bessent, a long-time hedge fund manager familiar with debt markets. 

Such people could play the same role that Rubin did for Clinton, Yardeni said, “in making him realize that whatever he does, it’s got to come out as relatively fiscally conservative on balance.”

Bessent said in June he’d urge Trump to slash the federal deficit to 3% of economic output by the end of his term, from 6.4% last year. In prepared testimony for his confirmation hearing in Congress on Thursday, he praised Trump’s 2017 tax cuts and his tariff plans, and said Washington must ensure the dollar remained the world’s reserve currency.

He didn’t respond to requests for comment on the bond market.

However, another long-time economic adviser to Trump, the economist Arthur Laffer, said the budget deficit is not the right focus. His Laffer Curve theory, dating back to the 1970s, posits that tax cuts can actually lead to higher tax revenues by stimulating economic activity.

Laffer said the recent rise in bond yields was a positive sign for the new administration: it reflected bets that Trump’s policies would boost growth. 

“They’re going to borrow the funds they need to borrow to increase the productivity of goods and services in the U.S. economy and encourage work, effort and productivity, and participation rates,” Laffer said. “That’s what we did under Reagan, and that’s what Trump [will do] right now.”

Laffer was an economic adviser to former President Ronald Reagan, whose tax cuts and higher spending in the 1980s caused deficits to balloon – policies that Clinton had to reverse.

Bill Gross, a prominent bond investor who was in the vigilante posse that faced down Clinton, dismissed Laffer’s prediction that growth would resolve the substantial U.S. deficit.

“Didn’t happen. Won’t happen now,” Gross said in an email. 

“ATMOSPHERE OF CHAOS”

Reuters’ review of bond vigilantism since the 1980s showed that once markets stop having confidence in policy, politicians can quickly lose control.

Alarm (NASDAQ:ALRM) over unfunded tax cuts in the UK budget – meant to spur economic growth – roiled Britain’s debt markets in the fall of 2022. Gilts suffered their biggest one-day rout in decades and the pound sank to record lows, forcing the Bank of England to intervene.

“My main recollection was the atmosphere of chaos,” said then-finance minister Kwasi Kwarteng, who was fired by his boss, prime minister Liz Truss, after only 38 days in his job.

“The market essentially forced the prime minister to remove me, and also as a consequence of that, I mean she just couldn’t hold the line, and she resigned literally six days later,” Kwarteng said.

Truss, the shortest serving prime minister in British history, did not respond to an interview request. She has defended her budget, saying she tried to implement the right policies. 

Traders’ decisions to buy or sell debt reflect a range of factors such as what they think of a country’s growth prospects, inflation trajectory and the supply and demand for bonds. 

Some metrics are now suggesting that lending money over a longer period is getting riskier, prompting investors to charge more interest on bonds.

One such metric is how a country’s borrowing costs compare to its growth potential. If they are higher than growth in the long term, the debt-to-GDP ratio would increase even without new borrowing, meaning it risks becoming unsustainable over time.

The Fed sees long-term U.S. real growth at 1.8%, which translates to 3.8% in nominal terms once the central bank’s inflation target of 2% is taken into account. The U.S. 10-year bond yields are already higher, at around 4.7% currently. If that continues, it would suggest the current growth trajectory will not be enough to sustain the debt levels.

The story is similar in Europe. For example, Britain’s budget watchdog estimates real growth averaging 1.75% in the long term, which including a 2% inflation target would lag the 10-year gilt yield of around 4.7%. 

US POLICY, GLOBAL IMPACT

Much rides on how bond markets respond to the Trump administration. A surge in interest rates in the United States – the world’s biggest economy and the lynchpin of the global financial system – would send shockwaves globally.

Sovereign debt markets are already jittery. In recent days, the UK has come under pressure from bond traders who at one point pushed the yield on 30-year British government bonds to a 26-year high. The additional yield France pays for 10-year debt over Germany rose in November to the highest since 2012 when Europe was engulfed in a sovereign debt crisis.

Higher borrowing costs for governments trickle down to consumers and companies, curtailing economic growth, increasing debt defaults and leading to sell offs in stock markets.

Regaining the confidence of bond markets can require painful steps that hit Main Street – such the series of austerity measures that Greece had to implement, starting in 2010, to stem the European sovereign debt crisis.

Mario Monti, an economist who was tapped in 2011 as prime minister to rescue Italy from financial implosion, said a major difference now is that the largest European economies are under pressure, whereas in the past it was the smaller ones.

Monti said the leadership of the United States, under then-President Barack Obama, was vital to help contain the euro zone crisis.

In May 2012, Obama held a two-hour meeting with Monti, and his German and French counterparts at Camp David, in Maryland, during a G8 gathering. “Curiosity and pressure from Obama was extremely helpful,” Monti said.

TRIGGER POINTS

Economists disagree over to what extent higher U.S. bond yields are currently being driven by factors like growth and inflation expectations, versus the demand and supply of new bonds, or the sustainability of government debt.

Moore, the Trump adviser, attributed the rise in yields to investors getting nervous about inflation creeping up. He blamed that on the Fed’s move to cut rates at the end of last year: he said that had sent a message to the market that the central bank was not serious about bringing inflation down to its 2% target.

Fed officials have repeatedly said they want to hit that objective.

Moore said that some investors’ worries about government spending were weighing on yields, too, and that it was unclear how effective the Elon Musk-led Department of Government Efficiency would be. “There’s some concern about whether Republicans are serious about cutting spending,” Moore said.

Musk has acknowledged that his goal of cutting $2 trillion in spending from the $6.2 trillion federal budget is a long shot. 

Bond markets are waiting to see the impact of Trump’s spending cuts and tax reductions, and disappointments could trigger the vigilantes, several experts said. Persistent wrangling over the U.S. debt ceiling, further downgrades to the U.S. credit rating or a fall in foreign demand for U.S. Treasuries due to reasons like sanctions and wars could make matters worse.

“There are many possible sparks,” said Ray Dalio, the founder of macro hedge fund firm Bridgewater Associates, in an email.

Investing.com – US stock futures advance on Thursday, suggesting equities may be on track to add to gains logged in the previous session. Investors are gearing up for more economic data and bank earnings after sentiment was bolstered by cooler-than-projected core consumer price numbers and strong results from large US lenders. Meanwhile, TSMC reports better-than-anticipated fourth-quarter profit thanks to artificial intelligence-fueled demand for its chips.

1. Futures higher

US stock futures moved higher, pointing to an extension to a surge on Wall Street in the prior session that was sparked by a soft core inflation reading and solid earnings from big US banks.

By 03:30 ET (08:30 GMT), the Dow futures contract had added 61 points or 0.1%, S&P 500 futures had ticked up by 23 points or 0.4%, and Nasdaq 100 futures had gained 123 points or 0.6%.

The three averages all spiked on Wednesday, notching their biggest daily percentage climbs since November 6, as a cooler-than-anticipated measure of core consumer price growth in December bolstered hopes for more Federal Reserve interest rate cuts this year. Fed officials noted that while uncertainty swirls around the policies of the incoming Trump administration, the figure helped the outlook for inflation.

In the wake of the data, the benchmark US Treasury note yield — which had risen to multi-month highs in recent days, denting the attractiveness of equities — also dropped. Strong results from major US lenders supported sentiment as well (more below).

2. Retail sales due

Investors will have the chance to parse through a slew of fresh US economic data on Thursday, including gauges of retail sales and manufacturing activity.

Economists expect retail sales to grow by 0.6% month-on-month in December, slowing slightly from an increase of 0.7% in the prior month. In November, the reading rose by more than anticipated, as purchases of online items and motor vehicles indicated momentum in the US economy heading into the end of 2024.

Elsewhere, a monthly factory index from the Philadelphia Federal Reserve is tipped to come in at negative 5.2, an improvement from a prior level of negative 16.4. However, the mark would still be in negative territory, suggesting contraction in manufacturing activity. The outlook for the sector, which makes up more than 10% of the US economy, has been clouded by a lack of clarity around the Fed’s monetary policy trajectory as well as President-elect Trump’s plans to impose sweeping import tariffs.

A look at weekly initial jobless claims is also due out, with traders eyeing the prospects for labor demand following a blockbuster employment report last week.

3. More bank earnings ahead

On the earnings front, Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) are scheduled to be the latest big-name US lenders to report their latest quarterly results.

The numbers, which are set to be unveiled prior to the opening bell on Wall Street, will follow buoyant returns from several of their peers on Wednesday.

JPMorgan Chase (NYSE:JPM) posted an all-time high annual profit underpinned by a fourth-quarter recovery in markets, while Goldman Sachs (NYSE:GS) logged its best-ever quarterly income, Wells Fargo ‘s (NYSE:WFC) bottom-line figure topped estimates, and Citigroup (NYSE:C) swung to a profit. Shares in all of these companies closed higher.

Executives at these companies also noted a rise in confidence in the future operating environment, citing expectations that the Trump administration will roll out more business-friendly policies. In particular, Goldman Sachs CEO David Solomon told analysts that there has been an “overall increased appetite for dealmaking” as firms prepare for potentially looser regulations and tax cuts during Trump’s second term in the White House.

4. TSMC profit tops estimates

Taiwan Semiconductor Manufacturing Co, also known as TSMC, clocked a higher-than-expected fourth quarter profit on Thursday thanks to artificial intelligence-powered demand for its advanced chips.

The world’s biggest contract chipmaker forecast a substantial increase in capital spending for 2025, citing a pick-up in capacity utilization and increased production at its new facilities in the US and Japan.

TSMC’s net income surged 57% to T$374.68 billion ($11.60 billion) in the three months to December 31, the company said in a statement. The figure was higher than Bloomberg estimates of T$369.84 billion.

For the first quarter of 2025, TSMC CFO Wendell Huang forecast revenue between $25 billion and $28 billion, citing some softer seasonal trends in smartphone demand and AI investment.

TSMC is also set to ramp up capital spending in the face of more AI demand in the year, with Huang pegging 2025 capital expenditures at between $38 billion-$42 billion, up from $29.8 billion in 2024. About 70% of this will be for advanced processes technologies, TSMC’s biggest revenue earner.

5. Crude muted

Oil prices hovered around the flatline on Thursday, adding to recent highs, driven by a combination of softer US inflation data, new sanctions on Russian oil, and significant drawdowns in US crude inventories.

By 03:31 ET, the US crude futures (WTI) were mostly flat, while the Brent contract traded down by 0.1% at $81.94 a barrel.

Oil prices rose more than 2% on Wednesday, to their highest levels since July, as a benign US inflation report brought expectations of softer monetary policy back into play, potentially boosting economic growth.

Supporting the bullish sentiment, the US Energy Information Administration reported a drawdown in crude oil inventories of 2 million barrels, indicating a tightening of supply.

COPENHAGEN (Reuters) – Denmark’s Prime Minister Mette Frederiksen has called the country’s business leaders to a meeting on Thursday after U.S. President-elect Donald Trump last week threatened military or economic action such as tariffs to take control of Greenland.

Trump said it was an “absolute necessity” for the United States to take control of the vast Arctic island, which is a semi-autonomous territory of Denmark.

Frederiksen told Trump in a 45-minute phone conversation on Wednesday that it was up to Greenland to decide its future and that Denmark is willing to do more to strengthen security in the Arctic.

She also emphasized that Danish companies contribute to growth and jobs in the United States and that the EU and the U.S. have a common interest in increased trade.

Denmark is home to companies such as drugmaker Novo Nordisk (NYSE:NVO), shipping group Maersk, brewer Carlsberg (CSE:CARLb), toymaker Lego, jewellery maker Pandora (OTC:PANDY) and wind turbine maker Vestas.

“It’s important that we have a good and constructive dialogue with the Danish business community. In a time of geopolitical tensions, we must seek dialogue and cooperation,” Minister for Trade and Industry Morten Bodskov said in a statement.

The ministry declined to give any detail on the time for the meeting or who was invited.

Following Frederiksen’s conversation with Trump, foreign minister Lars Lokke Rasmussen also called members of the foreign policy committee to a meeting on Thursday.

BEIJING (Reuters) – China said on Thursday it would apply provisional duties on imports of industrial plastics from the United States, European Union, Japan and Taiwan after a months-long anti-dumping investigation.

The provisional anti-dumping levies on polyacetal copolymers will start from January 24 and range from 3.8% to 74.9% depending on the country and company, the commerce ministry said in a statement.

The plastics in question can partially replace metals such as copper and zinc and have various applications including in auto parts, electronics, and medical equipment, the ministry said.

LONDON (Reuters) – Britain’s finance minister Rachel Reeves said on Thursday she would press regulators on what more her government can do to deliver growth after data showed the country’s economic output inched up by a lower-than-expected 0.1% in November.

“I am determined to go further and faster to kickstart economic growth,” Reeves said in a statement. “Today I will be pressing regulators on what more they can do to deliver growth.”

Investing.com – The UK economy returned to growth in November, after the contraction seen in the prior month, but economic activity in the fourth quarter remains subdued, piling the pressure on the Bank of England to ease monetary policy further in 2025.

Data released earlier Friday by the Office for National Statistics showed that the UK economy grew by 0.1% in November, below the 0.2% expected, after contracting by 0.1% in October. This resulted in an annual growth rate of 1.0%, a drop from the revised lower 1.1% the prior month..

This sombre start to the fourth quarter marks a significant slowdown in growth momentum and output activity compared to the robust performance in the first half of the year.

Additionally, consumer and business confidence across major industries has declined significantly, compounding the existing headwinds, while the forthcoming increase in employers’ National Insurance Contributions, announced in the Autumn Budget, is expected to weigh on the labor market and dampen growth.

Throw in the potential for new tariff policies from the upcoming Trump administration and the possibility of a cut to government spending as the new Labour government contends with rising bond yields and significant downside risks to growth exist. 

The International Monetary Fund forecasts that the UK will grow by 1.1% in 2024, which is slower than previous periods but would put the UK in the middle of the pack of the world’s leading nations. 

The BoE has reduced its benchmark Bank Rate twice since August – less than other central banks – and it has stressed it is likely to move gradually on further interest rate cuts, given persistent inflation pressures in Britain’s economy.

It next meets in early February, and the pressure is mounting on the central bank to cut interest rates again, having last moved in November, reducing its base rate then to 4.75% from 5%. 

Investing.com– China’s economy shows resilience but faces potential challenges due to limited policy support and external headwinds, according to Morgan Stanley (NYSE:MS) analysts.

While recent export and consumption figures provide reasons for optimism, underlying concerns over fiscal and housing policy measures highlight a more cautious outlook, analysts said in a note.

In its latest research note, Morgan Stanley outlines “bull” and “bear” scenarios for the world’s second-largest economy.

On the positive side, Chinese export growth surged 10% in Q4 2024, up from 5.4% in the third quarter, driven by front-loaded shipments to the U.S. ahead of potential tariff changes under the incoming Trump administration, analysts wrote.

Consumption also showed strong momentum, with December sales of autos and home appliances benefiting from Beijing’s expanded consumer trade-in programs, potentially keeping GDP growth at 5% in annualized terms through Q1 2025.

However, Morgan Stanley analysts warn that these growth drivers might be short-lived.

Export front-loading and stimulus-induced consumer spending have reduced Beijing’s urgency for broader policy easing. In the housing market, softening prices and increasing discounts offered by sellers highlight weak buyer demand, according to Morgan Stanley.

Progress on reducing housing inventories remains limited, and local government bond issuance—key to infrastructure spending—continues at a sluggish pace despite measures to streamline approvals, analysts said.

Monetary policy space also appears constrained as Beijing prioritizes yuan stability amid global inflation risks, the analysts added. The potential for broader U.S. tariffs or evolving domestic social dynamics could change the outlook in later quarters, but current conditions suggest only moderate economic momentum.

By David Lawder

WASHINGTON (Reuters) – President-elect Donald Trump’s pick for Treasury secretary, hedge fund manager Scott Bessent, vowed to maintain the dollar’s status as the world’s reserve currency as he prepared to face questions from U.S. senators on Thursday on how he will implement Trump’s tax cut, tariff and deregulation plans.

Bessent’s testimony at a Senate Finance Committee confirmation hearing at 10:30 a.m. EST (1530 GMT) will have financial markets on edge amid worries – reflected in rising bond yields – that Trump’s policy plans could stoke inflation and spark a new global trade war that threatens financial stability.

The 62-year-old founder of Key Square Capital Management will need to present himself as a moderating influence on Trump’s “more extreme” plans, said David Wessel, director of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy.

“What the markets and the business community want is to know that there’s a grown-up at the table who doesn’t think that cutting taxes excessively and running up the debt is a good idea,” Wessel said. “And someone who doesn’t think that all of Trump’s tariff campaign promises are good ideas.”

In prepared remarks released on Wednesday night, Bessent laid out a vision for “a new economic golden age” that included prioritizing strategic investments that grow the U.S. 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.

“And critically, we must ensure that the U.S. dollar remains the world’s reserve currency.”

TARIFF ADVOCATE

Bessent did not mention China in his prepared remarks, but he has been a strong advocate for Trump’s plans for sweeping tariffs that range between 10% on all imports and 60% on Chinese goods.

In a Fox News opinion piece published a week before he emerged as the winner of a high-drama contest for Trump’s Treasury choice in November, Bessent lauded tariffs as “a means to finally stand up for Americans” after decades of job losses to rising imports.

“Used strategically, tariffs can increase revenue to the Treasury, encourage businesses to restore production and reduce our reliance on industrial production from strategic rivals,” especially China, Bessent wrote.

TAX QUESTIONS

Finance Committee Democrats are expected to hammer Bessent on his plans for extending the 2017 tax cuts for individuals and small businesses that expire at the end of this year. Budget forecasters estimate this would add at least $4 trillion to the federal debt over a decade without savings elsewhere.

Bessent in his remarks called for the Trump administration and Congress to implement “pro-growth policies to reduce the tax burden on American manufacturers service workers and seniors.”

The latter policies refer to Trump’s campaign promises to lower the corporate tax rate to 15% from 21% for companies manufacturing products in the United States, and to exempt income from tips and Social Security from taxation.

Senate Finance Committee Democrat Elizabeth Warren released a list of 180 questions for Bessent to answer, including some challenging his past assertions that tax cuts could pay for themselves by generating higher growth.

“Your expertise has been in making already-rich investors even richer, not cutting costs for families or making the economy stronger for all Americans,” Warren wrote in her letter to Bessent.

The Senate panel’s Republican chairman, Mike Crapo, called Bessent “one of the sharpest minds in the global finance industry.”

Crapo added in his own prepared remarks that Bessent would “have to work with Congress to preserve and build on pro-growth Republican tax policies that have greatly benefited all Americans.”

FED INDEPENDENCE QUESTIONS

Bessent grew up in South Carolina and went to Yale University before starting work on Wall Street, where he helped famed investor George Soros earn over $1 billion by betting against the British pound in 1992.

He started Key Square in 2015, quickly raising $4.5 billion in assets, which peaked at $5.1 billion at the end of 2017 but dropped to $477 million six years later. Bessent has pledged to divest his Key Square investments to avoid conflicts of interest.

Markets also will parse Bessent’s comments on Federal Reserve independence, given his past advocacy of appointing a “shadow” chair to the Fed board who would offer alternative policy guidance. Trump has recently complained about interest rates being too high, despite three Fed cuts last year.