It may not seem so to some, but many Americans are struggling.
While the S&P 500 has delivered eye-popping returns over the past two years, workers have been increasingly pinched by inflation, and job losses are becoming increasingly common.
As a result, consumer confidence has plummeted, casting a big shadow over what could happen to the U.S. economy next.
The situation isn’t lost on Donald Trump’s administration. Many of our newly elected officials won votes last year because of growing unrest over sky-high rents and home prices, surging costs for everyday items like eggs, and concerns over high-paying working-class jobs.
Treasury Secretary Scott Bessent, a stock market veteran trained by legendary hedge fund manager Stanley Druckenmiller, has watched the economy’s give-and-takes for decades.
Recently, he offered up thoughts on the U.S. economy’s future that are likely to raise eyebrows.
Scott Bessent, Treasury Secretary, doesn’t mince words about the U.S. economy.
The U.S. economy is showing signs of mounting problems
The Federal Reserve’s dual mandate is to keep inflation and unemployment low. Often, those are competing goals.
Fed chairman Jerome Powell can raise the Fed Funds Rate, thereby increasing interest rates and making borrowing more expensive. This would reduce business and personal spending but put jobs at risk.
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Or, the Fed can cut interest rates, boosting spending to increase available jobs but risking sparking inflation.
We’ve seen this play out over the past few years. The Fed’s hawkish monetary policy in 2022 and 2023 successfully reduced inflation from over 8% to about 3%. However, this led to a wobbly jobs market, prompting the Fed to pivot to interest rate cuts in September, November, and December.
Unfortunately, those cuts have yet to stabilize employment. And they may have lit a fuse for inflation again.
In January, the Consumer Price Index showed that inflation had risen to 3% from 2.4% in September.
Meanwhile, Challenger, Gray, & Christmas’s latest report shows that 172,000 Americans lost their jobs last month, the largest number for the month of February since 2009.
It’s also problematic that many job losses in the past year have been among high-earners, such as technology workers. About 407,000 tech jobs have been lost since 2022, creating a headwind to discretionary spending.
Meanwhile, the Bureau of Labor Statistics said on March 7 that the U.S. economy created 151,000 new jobs in February, below Wall Street’s 163,000 forecast. The unemployment rate increased to 4.1%, up from 4% in January and 3.5% as recently as 2023.
Scott Bessent has harsh words on U.S. economy
Recession worries have become more common following weak data and poor consumer sentiment.
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The February Conference Board’s consumer confidence survey experienced the sharpest one-month decline since 2009. That followed similarly weak findings in the Michigan consumer sentiment survey, which retreated 16% from one year ago.
Unfortunately, it may get worse before it gets better.
“Could we be seeing that this economy that we inherited starting to roll a bit? Sure,” said Scott Bessent in a CNBC interview. “And look, there’s going to be a natural adjustment as we move away from public spending to private spending.”
Bessent believes this ‘adjustment’ is necessary following years of overspending that have made America addicted to friendly fiscal policy.
“The market and the economy have just become hooked. We’ve become addicted to this government spending, and there’s going to be a detox period,” added Bessent.
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The comments suggest that the Trump administration understands that cutting fat from the Federal budget, including via lay-offs that could further increase unemployment and pressure spending, won’t be pretty short-term.
However, it also shows that Bessent and the team believe that a reset is crucial for America to succeed.
That reset is evident in the administration’s already-announced moves to charge tariffs on imported goods from Canada, Mexico, and China.
While the 25% tariffs on Canada and Mexico and 20% tariffs on China could cause companies to increase prices to offset the extra tax burden, Bessent believes that any negative impact on prices will be a one-off.
The tariff bite isn’t great news for those worried over inflation now, but the administration thinks encouraging companies to make and source goods domestically will more than offset the pain over time.
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