MW Trump's Treasury nominee Scott Bessent faces his Senate confirmation hearing. Here are 5 things to watch.

By Vivien Lou Chen and Victor Reklaitis

The prominent hedge-fund investor is scheduled to appear before a Senate committee at 10:30 a.m. Eastern time Thursday

Scott Bessent, President-elect Donald Trump's nominee for Treasury secretary, will step into the spotlight this week, with the Senate Finance Committee scheduled to start his confirmation hearing at 10:30 a.m. Eastern time on Thursday.

Trump's decision in late November to pick Bessent - the founder and chief executive of hedge fund Key Square Group - triggered relief across global financial markets. Bessent's fans on Wall Street are hoping he can serve as a brake on Trump's proposals for tariffs, deficit spending and other matters that could rattle markets SPX - even as skeptics doubt the extent to which he'll be able to influence the incoming president.

Here are five issues to pay attention to during the hearing.

1. Tariffs

The extent to which Bessent offers support for major new tariffs is likely to be a focus for many investors during the confirmation hearing, given that some Trump allies who backed other names for the Treasury post argued in mid-November that Bessent is insufficiently supportive of such levies.

Bessent appeared to respond to such concerns in part with a Fox News column in which he praised tariffs, saying they provide revenue to the U.S. government, protect important American industries and serve as a negotiating tool.

Multiple published reports have suggested that any Trump tariffs could end up smaller than promised - such as by implementing tariffs gradually to avoid a surge in inflation or by only targeting critical sectors such as medical gear, energy production and defense-industry suppliers. Bessent told MarketWatch last year that it's "absurd" to think Trump's policies would be inflationary, in part, he said, because tariffs would be phased in.

Related: 'I'm hopeful the tariffs will be used as leverage': Trump's allies discuss his economic plans

Trump has called for universal tariffs of 10% to 20% on all imports, as well as a levy of 60% on Chinese imports. He also recently threatened Canada and Mexico with 25% tariffs.

2. Treasury issuance

The fixed-income world appears poised for big shifts when, as looks likely, Bessent takes the reins at the Treasury Department.

After Trump selected Bessent in November, Althea Spinozzi, the head of fixed-income strategy for Danish investment bank Saxo, said the implications for investors are profound because they likely will need to brace for a continuation of high Treasury issuance and "a bold approach to managing long-term borrowing costs." Perhaps the most intriguing part of Bessent's vision, she said, is his willingness to issue ultralong Treasury securities with maturities of 50 or 100 years, a sign that he probably thinks interest rates are likely to stay where they are or even rise.

Months before Trump was elected, the nonpartisan Congressional Budget Office forecast that higher structural deficits would push the amount of federal government debt held by the public as a share of gross domestic product to just over 100% this year, and to an all-time high of 122% in 2034. With the deficit projected to total $22.1 trillion from 2025 to 2034 based on the CBO's estimate last June, bond traders have been requiring more compensation to hold longer-dated Treasurys, one factor that contributed to this week's rise in 10- BX:TMUBMUSD10Y and 30-year BX:TMUBMUSD30Y yields to their highest closing levels since October 2023.

3. Tax cuts

Bessent has said his policy priority will be to deliver on Trump's tax-cut proposals, such as making the 2017 cuts permanent and levying no taxes on tips, Social Security benefits or overtime pay.

That will take a lot of work. Republicans in Congress and the incoming Trump administration have already indicated there could be plenty of debate this year over how tax cuts are paid for - and whether or not the cuts will be included in one giant bill that features other GOP priorities. At his hearing, Bessent could be called upon to weigh in on how exactly he plans to deliver.

Democratic senators are preparing to grill Bessent over the GOP's tax plans. Sen. Elizabeth Warren of Massachusetts laid out more than 180 questions for him - many of them touching on tax issues - in a 31-page letter on Sunday. One of her questions is: "Will you oppose any tax cut plan that, according to official scoring by CBO or [the Joint Committee on Taxation], increases the deficit over a ten-year period?"

4. The 3-3-3 plan and a shadow Fed chair

Bessent probably will get asked about his "3-3-3" economic plan, which echoes late Japanese Prime Minister Shinzo Abe's "three arrows" initiative.

The Treasury nominee's goals are 3% growth in U.S. gross domestic product, thanks in part to deregulation; a budget deficit at 3% of GDP; and 3 million barrels a day of increased oil production.

In her letter, Warren posed questions about the three-point plan, asking: "In your view, what explains the failure of the first Trump Administration's tax and deregulatory policies to spur 3 percent growth?"

Bessent probably won't be able to avoid questions about his proposal last fall for Trump to pick the next chair of the Federal Reserve more than a year before the end of current chief Jerome Powell's term. The hedge-fund manager - known for helping to "break the Bank of England" three decades ago when he worked for storied investor George Soros - later walked back the "shadow Fed chair" proposal, which had been viewed as a way to sideline Powell.

While Bessent has said tax cuts will be his policy priority as Treasury boss, he said he'll also focus on "maintaining the status of the dollar DXY as the world's reserve currency," along with enacting tariffs and cutting spending.

5. A release for Fannie and Freddie

Investors in mortgage-finance giants Fannie Mae (FNMA) and Freddie Mac (FMCC) have watched the two stocks soar on hopes that the incoming Trump administration could end the federal government's conservatorship of the companies.

The stocks could make more big moves on Thursday, as analysts brace for Bessent to face questions about the two companies.

"While many of the questions for Bessent will focus on taxes and tariffs, we expect discussion of Bessent's thoughts on taking Fannie Mae and Freddie Mac out of the government conservatorship," Ian Katz, an analyst at Capital Alpha Partners, said in a note. Katz said it "would be interesting to hear" how Bessent believes that should be done, but added that it's likely the nominee "will be reluctant to get too specific."

Billionaire investor John Paulson, a major Trump donor, and hedge-fund manager Bill Ackman, who voiced support for Trump's 2024 campaign, both are expected to profit handsomely if Fannie and Freddie are freed from government ownership.

Bessent, for his part, has pledged to divest from a wide range of assets to avoid conflicts of interest while serving as Treasury secretary.

-Vivien Lou Chen -Victor Reklaitis

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 15, 2025 08:30 ET (13:30 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.