| I’m Chris Anstey, an economics editor in Boston. Today we’re looking at the outlook for the US Treasury under Scott Bessent. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X via @economics. And if you aren’t yet signed up to receive this newsletter, you can do so here. - Note: Next week, Economics Daily will be published a few hours later each day to bring you highlights from Davos, the Swiss resort where the global elite will gather for the World Economic Forum. If you are going, don’t forget to drop by Bloomberg House and register here.
- China hit its growth goal last year thanks to a stimulus blitz and an export push.
- A Fed governor suggested the central bank could lower interest rates again in the first half of 2025.
- India needs to cut tariffs to compete with Southeast Asia and attract US investment.
In some of her final public remarks as Treasury secretary, Janet Yellen this month said she hoped that the next administration takes the US fiscal trajectory “seriously” and described the current path as “simply not sustainable.” President-elect Donald Trump’s pick as her successor, Scott Bessent, in his Senate confirmation hearing on Thursday made clear he shares such concerns. He described the current budget deficit — at more than 6% of GDP — as a phenomenon unseen before outside of recession or war. Bessent said he was disturbed because the Treasury “historically used its borrowing capacity to save the union, to save the world and to save the American people,” whether during the Civil War and World War II or the Covid crisis. “And what we currently have now, we would be hard-pressed to do same.” After that, the outgoing and incoming (all indications are that Bessent will sail through to confirmation) secretaries diverge sharply. Bessent, a veteran hedge fund manager, said the No. 1 economic issue right now is extending the 2017 Republican tax cuts set to expire at year-end. Failure to do so would pose a massive economic blow that could trigger financial instability and even a “sudden stop” in activity, he said. Roughly 24 hours before those comments from Bessent at the Senate Finance Committee, Yellen said at a New York event that policies including a full extension of those very same 2017 tax cuts “could undermine our country’s strength, from the resilience of the Treasury market to the value of the dollar, even provoking a debt crisis in the future.” Democratic senators attempted to pin Bessent down on why multi-millionaires or billionaires need to have their tax rates held down, and Trump’s pick reprised longstanding Republican arguments that lower rates bolster economic activity and that the wealthy already pay an outsized share of overall federal revenues. “The United States does not have a revenue problem — it has a spending problem,” Bessent said, saying that discretionary outlays — those outside of entitlement programs including Social Security and Medicare — had swelled an “astonishing” 40% over the past four years. It all set the stage for what’s bound to be an intense year of wrestling over spending and taxes between the two sides, with Republicans holding only a wafer-thin majority in the House. The Best of Bloomberg Economics | - A top Biden economic adviser warned that the incoming Trump administration risks reigniting inflation if it interferes with Fed policymaking.
- Former central banker Mark Carney kicked off his bid to replace Justin Trudeau as the head of Canada’s Liberal Party and the country’s prime minister.
- UK retail sales posted a surprise fall around last month’s crucial Christmas period.
- Almost three quarters of Bank of Japan watchers predict an interest rate hike next week according to the latest Bloomberg survey.
- ECB officials judged that interest rates could be cut further if consumer prices develop in line with expectations.
- A US probe concluded that Chinese subsidies unfairly benefit the nation’s shipbuilding industry.
Germany’s economy just shrank for the second straight year, but help may at last be coming from fiscal policy, according to Barclays economists taking a look at the campaign platforms of the main parties ahead of the upcoming election in Europe’s biggest economy. The most probable outcome of the Feb. 23 election is a coalition between the conservative CDU/CSU alliance (which proposes corporate and income tax deductions) and the social democratic SPD or the Greens (both of which support a new public investment fund and targeted tax rebates for corporate investment), Balduin Bippus and Silvia Ardagna wrote in a note this week. “We expect that fiscal policy is unlikely to be the drag on German growth that it would have been” in the initial draft for 2025, the duo wrote. “We forecast fiscal policy will provide a small positive boost to growth both in 2025 and in 2026,” they wrote, penciling in GDP growth of 0.3% this year, accelerating to 1.1% in 2026 — the best since 2018, excluding the 2021-22 Covid rebound. | 
