Bessent: I Was Wrong About Tariffs Causing Inflation

U.S. Treasury Secretary Scott Bessent on Wednesday disavowed his previous warnings about tariffs, telling Congress he was mistaken to claim they would fuel inflation. The statement marks a significant reversal from advice he gave investors at his firm, Key Square, in January 2024, before Donald Trump’s successful presidential campaign.

During a tense House Financial Services Committee hearing, Bessent directly addressed his past analysis. "If I was mistaken, I want to correct it," he stated. "And I was also mistaken when I said the tariffs could be inflationary."

The "Dog That Didn't Bark"

Bessent, a Trump appointee, argued that the U.S. economy’s performance since the president returned to office in January 2025 has invalidated concerns over tariff-driven price hikes. He pointed to economic growth and cooling inflation as evidence.

"So tariff inflation was the dog that didn't bark," Bessent told lawmakers.

This view contrasts with recent economic data and commentary from the Federal Reserve. Last month’s Producer Price Index showed a larger-than-expected rise in December, and Fed Chair Jerome Powell recently noted that companies passing tariff costs on to consumers were keeping inflation at elevated levels.

Tense Exchange Defines Congressional Hearing

Democrats on the committee used the hearing, which was focused on the Financial Stability Oversight Council’s annual report, to challenge Bessent on the administration's trade policy.

Representative Maxine Waters, the committee's senior Democrat, led the questioning, referencing the same Key Square investor letter that predicted tariff inflation would strengthen the dollar. She demanded a "yes" or "no" answer on whether tariffs cause inflation.

Bessent cited data from the San Francisco Federal Reserve to argue they do not. Waters countered, claiming that prices for coffee and bananas rose after tariffs were imposed on producer countries. She added that tariffs on steel, lumber, and appliances were increasing costs for homebuilders and contributing to housing inflation.

The exchange escalated when Bessent attributed rising housing costs to a surge of immigrants. Waters repeatedly cut him off, stating, "Reclaiming my time," before asking Committee Chairman French Hill, "Can you shut him up?"

Bessent's full admission that his earlier inflation warning was wrong came later in the hearing, during questioning by Democrat Sean Casten.

Questions Mount Over Federal Reserve Independence

The hearing also explored the administration’s views on the independence of the Federal Reserve. Democrats pressed Bessent on whether he believed President Trump has the constitutional authority to fire the Fed chair or board members over policy disagreements.

Bessent stated he considers the central bank an independent agency but said he had no opinion on the president’s firing authority.

He acknowledged that "varying opinions" exist within the administration regarding the "unitary executive" theory, a legal doctrine that grants the president vast executive power. Bessent, who is not a lawyer, said the matter would ultimately be decided by the U.S. Supreme Court.

The Court heard arguments last month related to Trump's attempt last year to fire Fed Governor Lisa Cook, with a ruling anticipated by the end of June.