(Bloomberg) -- Treasury Secretary Scott Bessent rejected the idea that President Donald Trump's tariff hikes will ignite a new wave of inflation, and suggested that the Federal Reserve ought to view them as having a one-time impact.
"I've agreed not to talk about prospective Fed policy going forward, " Bessent said while answering questions after a speech at the Economic Club of New York. Still, "I would hope that the failed 'Team Transitory' could get back together and think that nothing is more transitory than tariffs if it's a one-time price adjustment."
The "Team Transitory" reference is to the Fed's 2021 call that an acceleration in consumer prices would prove transitory and didn't require higher interest rates — a judgment now viewed as an error.
Bessent highlighted that crude oil prices have tumbled since Trump came to office, and US bond yields have been dropping even as European and Japanese ones have surged. American mortgage rates have also come down.
"So, across a continuum, I'm not worried about inflation," he concluded. "Can tariffs be a one time price adjustment? Yes."
He also reiterated that he and Trump are focused on bringing down 10-year Treasury yields, rather than on the Fed's short-term benchmark rate.
Trump, Fed
"You will notice that he has stopped calling for the Fed to cut rates," Bessent said of Trump. "We want to focus on the 10-year, and what can we do as an administration to bring that down. One of the things is sound fiscal policy, controlling government spending — getting back the confidence."
The Treasury chief also backed a review of the Fed's supplementary leverage ratio as it applies to US Treasuries. Wall Street bond dealers have for years cited the burdens they face in making markets in Treasuries given the so-called SLR – which boosts the amount of capital they have to put aside when holding the debt.
"The SLR can risk becoming a binding constraint, instead of a backstop" for financial stability, Bessent said in his prepared remarks. "The result is that the safest asset in the country, US Treasuries, are not treated as such when the leverage restriction is applied."
On tariffs, Bessent responded to criticism that additional duties amounted to a regressive levy on poorer Americans. Gary Cohn, Trump's first National Economic Council director, said Tuesday that a broad tariff approach was "a really regressive way to raise revenue."
Tariff Defense
"Are they a regressive tax if you then use the income from tariffs to no-tax on tips, no-tax on Social Security, no-tax on overtime, making auto loans tax deductible," Bessent said — suggesting that import duty revenue could effectively pay for a range of tax-relief proposals that Trump has made. Those four measures affect "the bottom 50% of wage earners," Bessent said.
Tariff income could be "very substantial," he said.
He also defended tariffs on China as an effective pushback against an economic system that's at odds with that of the US, and had "decimated our manufacturing sector."
--With assistance from Molly Smith.
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