Treasury Secretary Scott Bessent is facing questions from the Senate about President Donald Trump’s ongoing campaign to lower interest rates, despite concerns it could fuel inflation.
Mr. Bessent appeared before the Senate Financial Stability Oversight Council on Thursday.
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There, he came under fire from Democrats over concerns about rising consumer prices and President Trump’s attempts to influence the U.S. central bank, the Federal Reserve.
One of the early clashes was with Sen. Elizabeth Warren, who demanded answers about a Wall Street Journal report that suggested Trump had joked that he would sue Federal Reserve Chairman candidate Kevin Warsh if he did not comply with the president’s demands.
“Secretary, can you promise me right now that President Trump’s Fed nominee, Kevin Warsh, will not be sued or investigated by the Department of Justice if he does not cut interest rates the way President Donald Trump wants?” Warren asked.
Mr. Bessent avoided such promises. “That’s up to the president,” he replied.
Pressure on the Federal Reserve
President Trump announced last week that he would nominate Warsh to replace current Federal Reserve Chairman Jerome Powell, who has come under intense criticism for his decision to gradually cut interest rates.
By contrast, President Trump has repeatedly called for interest rates to be lowered as quickly as possible.
For example, he told the Wall Street Journal in December that he wanted interest rates to be at “1%, maybe even lower.”
“Interest rates should be among the lowest in the world,” he told the paper. Currently, the federal interest rate is approximately 3.6%.
Experts say a sharp drop in the ratio could trigger a short-term market rally as loans become cheaper and the economy floods with money. However, that extra cash could weaken the dollar and lead to higher prices in the long run.
Traditionally, the Federal Reserve has operated as an independent government agency, based on the premise that the nation’s financial decisions should be made without political interference or favoritism.
But Trump, a Republican, is trying to bring the Fed under his control, and his critics accuse him of using threats of legal action to pressure the central bank to comply with his demands.
In August, for example, he tried to fire Federal Reserve President Lisa Cook over allegations of mortgage fraud, which she denies.
Mr. Cook was appointed to the central bank by Mr. Trump’s predecessor and rival, Democrat Joe Biden, and Mr. Cook has accused Mr. Trump of seeking to remove him for political reasons. The Supreme Court is currently hearing the case.
And in early January, the Justice Department opened a criminal investigation against Powell, echoing President Trump’s accusations that he mismanaged renovations to the Federal Reserve Building.
In response, Powell issued an unusual statement accusing President Trump of trying to bully Federal Reserve leaders into compliance with interest rate policy.
“The threat of criminal charges is the result of the Federal Reserve setting interest rates based on its best assessment of what will serve the public, rather than following the wishes of the president,” Powell wrote.
Bipartisan oversight of the Powell investigation
Mr. Trump’s joke about suing Mr. Warsh in light of a series of offensive actions against Mr. Powell and Mr. Cook fueled rumors that the Federal Reserve’s independence could be at risk.
Within hours of making the joke on January 31st, President Trump himself faced questions about how serious he was.
President Trump told reporters on Air Force One that his comments were “terrible. It’s a comedy.” “It was all comedy.”
But Warren pressed Bessent about Trump’s comments and scolded the Treasury secretary for not rejecting Trump’s remarks.
“I don’t think the American people are laughing,” Warren told Bessent. “These are people who were struggling with affordability.”
The possibility that Mr. Trump could exercise undue influence over the Fed even received some bipartisan criticism at Thursday’s board meeting.
Republican Sen. Thom Tillis of North Carolina acknowledged his “disappointment” in the current Fed chairman, but prefaced his remarks to Bessent with a statement condemning the investigation into Powell.
Still, Tillis emphasized his belief that Powell had committed no crime and that the investigation would undermine transparency in future Senate hearings.
He envisioned future government hearings being blocked by legal proceedings for fear of unfair prosecution.
“They’re going to have lawyers on both sides of them, and every time they think they’ve fallen into a trap of perjury, they’re probably just going to say, ‘I’m going to talk to my lawyer and go on record,'” Tillis said of the scenario.
“Is that really the kind of coach we want in the future?”
Bessent said he supports the Fed’s long-term goal of keeping interest rates around 2%.
“We don’t want to eliminate inflation completely,” Bessent said. “The hope is to get back to the Fed’s 2% target, but it has been hovering at 2.1% for the past three months.”
Examining lawsuits against the IRS
As Thursday’s hearing continued, Bessent was forced to defend the Trump administration on a variety of fronts, from its far-reaching tariff policy to its fight to lower consumer prices.
But when it was Arizona Democrat Ruben Gallego’s turn to take the microphone, another element of Trump’s agenda took center stage.
Gallego sought to shed light on the revelation in January that President Trump had filed a lawsuit against the Internal Revenue Service (IRS), which is part of his executive branch.
President Trump is seeking $10 billion in damages for leaking his tax returns during his first term as president. The IRS itself was not responsible for the breach, but rather a former government contractor named Charles Littlejohn, who was sentenced to five years in prison.
Mr. Bessent, who is not named as a defendant in the lawsuit, currently serves as Treasury Secretary and Acting Commissioner of the Internal Revenue Service.
Critics say Trump’s lawsuit amounts to self-dealing. Trump could greenlight his own settlement because he has significant influence over the Justice Department, which protects the federal government from such lawsuits.
In an exchange with Gallego on Thursday, Mr. Bessent confirmed that any damages paid to Mr. Trump would be covered by taxpayer funds.
“Where will that $10 billion come from?” Gallego asked.
“That will come from the Treasury,” Bessent replied. Additionally, President Trump emphasized that he intends to donate any funds to charity and that the Treasury Department itself will not make any decisions to award damages.
Still, Gallego pressed Mr. Bessent, pointing out that ultimately the Treasury Department would have to spend the money and that Mr. Bessent would be in charge of that decision.
Gallego argued that the situation created a conflict of interest because Bessent is a political appointee of President Trump and could be removed by the president.
“Have you ever recused yourself from decisions regarding payments to the president for these claims?” Gallego asked.
Bessent dodged the question and instead replied, “I follow the law.”
