Scott Bessent said to be in the race for next Fed chair. What it means for stock market investors

Economic Times

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Scott Bessent, the U.S. Treasury Secretary and a central figure in President Donald Trump's second-term economic team, is being seen as a serious contender to succeed Jerome Powell as Federal Reserve chair.According to a Bloomberg report published Wednesday, a growing chorus of advisers inside and outside the Trump administration are backing Bessent for the role, viewing his rise as a potential shift in the Federal Reserve's approach to monetary policy and market intervention.The development has sparked renewed speculation about a pivot in U.S. monetary policy, one that could have significant consequences for rate-sensitive sectors such as technology.Investor sentiment shifted quickly following the news. 'U.S. media say Bessent is seen as a contender to be the next Fed chair,' said Vikram Kasat, Head – Advisory at PL Capital. 'If it happens, then IT stocks will become blind buy with strong likelihood of interest cuts and accommodative monetary policy as happened in India.'Market participants point to Bessent's recent comments urging rate cuts as a sign that his approach at the Fed could lean more dovish than Powell's.In a May interview with Fox Business, Bessent noted, 'We are seeing that two-year rates are now below fed funds rates,' adding, 'That's a market signal that they think the Fed should be cutting.' At the time, the two-year Treasury yield stood at 3.56%, notably below the Fed's 4.33% benchmark rate.A Fed led by Bessent is seen by some as more likely to ease borrowing costs, especially as the 10-year Treasury yield has already declined from 3.5% in late 2024 to about 2.8% this year. Such expectations have buoyed equities in rate-sensitive sectors, with tech stocks in particular benefiting from the drop in yields.President Trump has said he would name a successor 'very soon' to replace Powell, whose term ends in May 2026. Bessent, responding to queries about the role, told Bloomberg: 'I have the best job in Washington. The president will decide who's best for the economy and the American people.''Given the amount of trust and confidence that the global financial community has in Scott Bessent, he's an obvious candidate,' Tim Adams, CEO of the Institute of International Finance told Bloomberg. He described Bessent as a 'dark horse' in the race. While former Fed Governor Kevin Warsh remains in contention, Bessent is now among those being seriously considered.Despite his calls for monetary easing, Bessent has maintained a fiscally conservative stance as Treasury Secretary. His '3/3/3' plan aims for 3% GDP growth, 3% annual deficits, and a three-million-barrel-per-day increase in domestic oil output, measures intended to stabilize the national debt at 100% of GDP.That approach could reduce Treasury issuance, helping to cap long-term interest rates . However, Bessent's support for Trump's aggressive trade stance, including tariffs and reshoring supply chains, adds a layer of complexity. Such policies could stoke inflation, complicating efforts to ease monetary conditions.'Scott Bessent proved he could implement President Trump's agenda during an incredibly turbulent first six months,' Steve Bannon, former White House strategist and an outside adviser to the administration, told Bloomberg.The prospect of Bessent leading the Fed is drawing close attention from both equity and bond investors. While his fiscal policies suggest potential downward pressure on yields, the inflationary risks from trade policy remain a key concern. Any rise in core inflation could force the Fed, under Bessent or otherwise, to take a more hawkish stance, reversing recent gains in rate-sensitive stocks.Bond markets, which have rallied on expectations of easing, may face volatility if inflation outpaces forecasts. Equity sectors like technology and real estate, which rely on low borrowing costs, could benefit if rates fall, but face downside risk from supply chain disruptions or renewed tariff battles.Formal interviews for the Fed role have not yet begun, according to Bloomberg. But as Bessent plays a dual role, as a candidate and a central figure in the selection process, markets will be watching for further signals on how the Trump administration's economic agenda could shape the next chapter of U.S. monetary policy.Also read | Scott Bessent also a contender to succeed Fed Chief Powell(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)