Treasury Secretary Scott Bessent blamed the current state of the economy on Federal Reserve policies and attributed high inflation to high government spending during the COVID era, which the Trump Administration is cutting.
Bessent Says Trump's Spending Cuts To Ease Inflation
Bessent, in his interview with CNN's "State of the Union," with Jake Tapper on Sunday, acknowledged that the economy is in a "transition period," with certain sectors experiencing a recession. He attributed this to the Federal Reserve's policies.
Scott Bessent said that the Trump administration had reduced government spending, noting that during the ongoing shutdown, spending for the fiscal year ending September 30 was lower than the previous year. As GDP grew, he added, the deficit-to-GDP ratio fell from about 6.4-6.5% to 5.9% -- the lowest outside wartime or recession.
Bessent argued that with spending contracting, inflation should ease, and therefore the Federal Reserve ought to consider cutting interest rates.
When asked if the U.S. could face a recession if the Fed doesn't continue to lower rates, Bessent acknowledged that while the overall economy is in "good shape...there are sectors of the economy that are in recession."
He pointed out that the Fed's policies have caused significant "distributional" problems, particularly affecting the housing market, and if they lower the mortgage rates, they could "end" the ongoing housing recession.
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New York, California As Recession Barometers
Bessent's comments come in the wake of a prolonged government shutdown, which he previously acknowledged as having economic consequences. Earlier, he highlighted the shutdown's impact on the economy, attributing the prolonged shutdown to the Democratic Party and the mainstream media.
Meanwhile, the Federal Reserve's policies have been a subject of debate, with some officials calling for continued easing despite limited economic data due to the shutdown. Federal Reserve Governor Christopher Waller recently criticized Chairman Jerome Powell's "fog" excuse, urging the Fed to keep cutting rates despite the data gaps.
Amid these discussions, economist Mark Zandi of Moody's Analytics has pointed out that the economic performance of two key states, New York and California, could determine whether the U.S. enters a recession. Despite facing significant economic challenges, these states are holding steady, potentially influencing the nation's overall economic trajectory.
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