Besant Hearing "Mars Four Stars": Denies that tariffs cause inflation, reiterates strong dollar, holds the Federal Reserve accountable, and is criticized as a Trump lackey

On February 4th, Eastern Time, U.S. Treasury Secretary Steven Mnuchin attended a hearing of the House Financial Services Committee, engaging in a heated debate with lawmakers over various policies of the Trump administration, making the entire process quite "explosive."

During the more than two-hour hearing, Mnuchin faced intense questioning from Democratic lawmakers, with both sides engaging in fierce exchanges over tariffs, the independence of the Federal Reserve, financial regulation, and other policies. The hearing was charged with tension, with Democratic leader Maxine Waters directly demanding that Mnuchin "shut up," and New York Democratic Congressman Gregory Meeks accusing Mnuchin of being Trump's "lapdog."

Mnuchin firmly defended the Trump administration's "growth-promoting" policy agenda during the hearing, emphasizing that tariffs would not lead to inflation, a statement that immediately provoked strong dissatisfaction from Democratic lawmakers.

On the issue of Federal Reserve independence, Mnuchin displayed a contradictory stance, expressing support for the Fed's independence in monetary policy while also emphasizing that this independence is based on public trust and needs to be "accountable," as the Fed allowed high inflation during the Biden administration, losing the trust of the public. He stated that Trump, as president, has the right to comment on Fed decisions and refused to clearly oppose Trump's potential dismissal of Fed governors due to policy disagreements.

Regarding exchange rate policy, Mnuchin reiterated the traditional stance of "always supporting a strong dollar policy." He also responded to lawmakers' inquiries on various topics such as housing affordability, cryptocurrency regulation, and financial stability, but was repeatedly reminded by Committee Chairman French Hill to adhere to procedural rules due to interruptions during questioning. This hearing highlighted the partisan divisions Congress faces regarding the Trump administration's economic policies and kept investors alert to uncertainties about future policy directions.

Tariff Dispute: Insisting It Won't Cause Inflation Faces Fierce Attacks from Democrats

The most controversial statement Mnuchin made during the hearing was regarding the impact of tariffs on inflation. He clearly stated that "tariffs will not lead to inflation," citing a research report released by the San Francisco Fed last November, which claimed that based on 150 years of data, tariffs do not trigger inflation.

This assertion was immediately met with fierce backlash from Democratic lawmakers. Senior Democratic member of the Financial Services Committee, Maxine Waters, questioned Mnuchin about why his previous statements in the private sector were so different from his current ones. When Mnuchin attempted to rebut, Waters demanded that he "shut up." Mnuchin then countered that Waters "does not understand the difference between general inflation and one-time price increases."

California Democratic Congressman Brad Sherman dismissed the claim that tariffs do not cause inflation as "sophistry," stating that in his district, people consider a 20% price increase as "unaffordable." Michigan Democratic Congresswoman Rashida Tlaib also questioned the tariff policy.

When asked whether baby products would receive tariff exemptions, Mnuchin stated that many such products are produced in China, and he would "speak out" for exemptions on these products, while emphasizing that he is not the U.S. Trade Representative. Regarding the impact on tourism, Mnuchin responded to the decline in visitors from countries like Canada by saying, "That's their loss."

Federal Reserve Independence: Support for Independence but Emphasis on Accountability Raises Concerns

On the critical issue of Federal Reserve independence, Bessent's statement reflects a subtle balance. He expressed confidence in the Federal Reserve's independence in monetary policy, while also emphasizing that this independence is based on the trust of the American people and stated his belief in accountability. He said:

"I believe in the independence of the Federal Reserve, but I also believe in accountability."

When asked whether he would advise Trump to "verbally and politically intervene" in Federal Reserve decisions, Bessent responded, "That's his right," as well as the right of all members of the House of Representatives present. He continued, "Congress does not fund the Federal Reserve. The Federal Reserve has magical funding; it prints its own money."

Bessent stated that the Federal Reserve should maintain independence in monetary policy but needs to be accountable on other issues, including making political statements or when costs exceed budgets. He claimed that the Federal Reserve's independence is based on its trust with the American people, and that it lost the trust of the American people when it allowed the worst inflation in 49 years to ravage the working class during the Biden administration.

When pressed by Democratic Congressman Ritchie Torres on whether the president has the constitutional power to dismiss the Federal Reserve Chair or governors solely due to policy disagreements, Bessent declined to take a clear stance, stating, "I am not a lawyer, I have no opinion on this," and that the government needs to wait for the Supreme Court to rule on such matters. He stated:

"I do believe the Federal Reserve must maintain its credibility, it must be above reproach, like Caesar's wife."

Strong Dollar Commitment: Reiterating Traditional Position but Policy Consistency in Doubt

On exchange rate policy, Bessent reiterated to the House Financial Services Committee: "We always support a strong dollar policy." This statement is consistent with his previous position, and the dollar did not change much after his comments.

Democratic Congressman Bill Foster from Illinois pointed out during questioning that two things happen during every Republican presidential term: the dollar weakens and manufacturing jobs are lost, while the opposite occurs under Democratic leadership. Foster claimed that the U.S. is becoming a high-tariff regime like Europe.

Bessent countered that Foster was using foreign rhetoric and stated, "I can't snap my fingers and create factories," while noting that factory construction is underway.

Media analysts believe that Bessent's reiteration of support for a "strong dollar policy" is not as influential as it was during the globalization boom of the 1990s and early 2000s. Since the first Trump administration in 2017, through the Biden administration to now, the U.S. has shifted towards a protectionist agenda favoring weaker exchange rates.

Bessent told lawmakers that although there is rhetoric about "selling America," last year U.S. Treasury bonds attracted a record inflow of foreign funds. He indicated that he expects the yield on 10-year U.S. Treasury bonds to continue to decline and considers this metric an important standard for measuring success.

Market Comments and Regulation: Defending Trump's Statements, Criticizing Previous Policies

During the hearing, lawmakers mentioned that Trump stated on his social media platform last year that it was a good time to buy shares of Trump Media & Technology Group (DJT), which saw a significant increase in value that day, adding hundreds of millions to its market capitalization Democratic Congressman Al Green asked Bessent whether he thought the aforementioned events should be investigated. Bessent replied that it was unnecessary, reasoning that the statement had been widely circulated. Green stated that such actions would be seen as some sort of "scam" for any other president and that at least an investigation should be conducted, saying, "He is actually manipulating the U.S. stock market."

In terms of financial regulation, Bessent criticized previous regulatory actions as "reflexive regulation rather than crisis prevention," accusing regulatory agencies of acting as a "hazardous materials cleanup crew" rather than preventing dangers from spreading in the first place. He blamed the previous administration for diverting attention from safe and sound regulation to climate and reputational issues, implying that this led to the wave of bank failures in 2023.

Bessent described the Biden administration's policy on cryptocurrencies as "extinction." When asked whether the U.S. Treasury had the ability to "rescue Bitcoin," Bessent stated that he did not have the authority to use taxpayer money to purchase Bitcoin. Reports indicate that some Republicans hope Bessent will buy Bitcoin by selling part of the U.S. gold reserves, including Senator Cynthia Lummis.

Regarding the Genius Act on stablecoin regulation, Bessent stated that the bill could become "an important feature of U.S. government financing," as stablecoin assets would be allocated to short-term government debt or similar products.

When a congressman mentioned central bank digital currency (CBDC), Bessent responded that the government is currently not considering creating a CBDC and stated that he believes the Federal Reserve is not considering doing so either.

Housing and Community Banks: Focus on Affordability, Call for Tailored Regulation

On the issue of housing affordability, Bessent emphasized that the premium on mortgage securities relative to government bonds is at its lowest point in years and noted that the 10-year yield fell last year. He hinted that the government is still considering ending the regulatory takeover of Fannie Mae and Freddie Mac.

Bessent told Texas Republican Congressman Pete Sessions that the U.S. needs to allow small banks back into the mortgage market, stating, "It is a tragedy that the average age of first-time homebuyers has reached 40."

When questioned by Democratic Congresswoman Sylvia Garcia about how immigration affects the $500,000 home price, Bessent stated that immigration increases housing demand, which "transmits upward" and drives up prices, particularly rents. He cited a study from the Wharton School linking the increase in immigration during the Biden administration to rising housing and rent prices. Garcia pointed out that immigrants are also building many new homes.

Regarding community bank regulation, committee chairman and Arkansas Republican Congressman French Hill stated that regulation has created a situation where community banks are "too small to succeed." Bessent agreed, stating that "a thriving community banking infrastructure and ecosystem is crucial," emphasizing the need for "tailored" regulation and arguing that small banks should not face the same regulatory framework as large banks.

Bessent repeatedly reiterated his "Main Street first" philosophy, stating that it is about making Wall Street serve the public rather than the other way around. He mentioned that The Wall Street Journal had attacked him as a populist for saying, "It's time for the public," and Bessent remarked that the newspaper is called "The Wall Street Journal," not "The Main Street Journal."

Democrats accuse Besant of covering for Trump, hearing spirals out of control

The hearing became charged with tension right from the opening poll. In addition to Maxine Waters demanding Besant to "shut up," the questioning from New York Democratic Congressman Gregory Meeks was the most intense.

Meeks pressed on the issue of a UAE company making a large investment in the Trump family's World Liberty Financial cryptocurrency project while Trump was simultaneously negotiating foreign policy with the UAE.

Meeks stated, "This raises national security concerns," and demanded that Besant commit to strengthening the review of any bank license applications related to World Liberty Financial. Meeks then shouted at Besant, "Don't be his (Trump's) lapdog! Stop covering for the president! Don't be his lapdog!" He also exclaimed that as the U.S. Treasury Secretary, Besant needs to "serve the American people."

Due to the heated exchanges, Financial Committee Chairman Hill had to repeatedly remind the members and Besant to adhere to House decorum rules and keep questioning time to five minutes. He clearly attempted to ease the tension after Meeks' questioning, but with little success.

Massachusetts Democratic Congressman Stephen Lynch's confrontation with Besant showed that Besant had become quite comfortable in countering political opponents. When Lynch tried to shift to another question, saying he wanted to have a serious discussion with Besant, Besant almost whispered, "The questions must be serious." He later said to the loud Lynch, "Can you speak louder? I can't hear you."

California Democratic Congressman Juan Vargas expressed disappointment with the hearing, accusing Besant of making defamatory and reckless comments about Democrats, stating, "Today was basically a waste of time," and undermined confidence in the nation. He said, "I won't ask any questions," telling Besant he thought "that would be pointless." Vargas indicated that he believed Besant was capable, but that Besant did not perform at his best this Wednesday.

In response, Besant stated that he had a good dialogue with the sometimes fiery Congressman Green, "Unfortunately, not all dialogues can be like that."

Missouri Democratic Congressman Emanuel Cleaver attempted to ease the atmosphere, saying, "You can't make honey while stinging people." However, Besant remained firm in his response to Cleaver's question about the Federal Reserve, reiterating his stance on the independence and accountability of the Federal Reserve.

Illinois Democratic Congressman Sean Casten mentioned a letter he wrote in January 2024, stating that tariffs would trigger inflation. Besant responded, "If I'm wrong, I want to correct it. I was also wrong when I said tariffs might trigger inflation." This contradictory statement further intensified the Democrats' doubts about his policy consistency