Why It Matters

The Trump administration's economic strategy came under fire during the annual hearing on the international financial system, with Treasury Secretary Scott Bessent insisting his market interventions worked. Bessent defended his controversial bond-buyback program before Congress on September 15, clashing with Democrats over whether tariffs are driving inflation as the economy confronts 10-year Treasury yields topping 5 percent for the first time since 2007.

The Big Picture

Inflation was running at 3.4% at the time of the hearing, which examined Treasury's decision to expand its longer-dated bond buybacks, which the department has said were intended to support liquidity in the market. Treasury announced in August that it would at least double the maximum size of its longer-dated liquidity-support buyback operations beginning Sept. 9.

In the first ten months of fiscal 2026, the U.S. deficit totaled $1.8 trillion. The G7 failed to agree on either fiscal consolidation in the US or accelerated structural reform in Europe, and the G20 finance ministers' summit then failed to resolve the issues.

What They're Saying

Bessent clashed with lawmakers as Democrats criticized his handling of the economy, from inflation and tariffs to the war in Iran. Bessent defended the buyback strategy methodically, while lawmakers from both parties pressed him on inflation, tariffs, and America's international standing.

Rep. Maxine Waters (D-CA), the ranking Democrat, opened with a sweeping critique of the administration's direction, saying, "You pledged stronger American leadership and greater stability. The reality is an increasingly isolated America, a weak, self-serving presidency, and instability everywhere."

Waters pressed Bessent directly on tariffs, asking whether they have driven inflation higher. Bessent shot back: "You're not making sense! If you believe tariffs are..." before Waters cut him off. Later, a Democratic lawmaker confronted Bessent over contradictory statements on tariffs, asking: "Do you want to correct what you said to the ranking member when you specifically said that you did not say tariffs are inflationary?" Bessent flatly denied ever calling tariffs inflationary, then reiterated his position that tariffs "allowed for trade deals that were previously impossible."

On the bond buybacks themselves, Bessent maintained steady ground. According to CNBC, he defended the Treasury's market interventions by arguing that yields would have been higher without the effort. The 10-year Treasury yield briefly exceeded 5%, a level not seen since 2007.

Waters highlighted the economic pain filtering through American households. Mortgage rates are at 7 percent, she noted, and tariffs on building materials are adding nearly $11,000 to the cost of a new home. One out of five Americans are rationing their meals, she said, painting a picture of strain beneath recent stock market highs.

The hearing also touched on stablecoin regulation and artificial intelligence in finance. Bessent touted the recently enacted GENIUS Act as establishing "a landmark framework and clear rules of the road for payment stablecoins," positioning digital assets as central to dollar dominance. The law requires stablecoins to hold short-term Treasurys, directly supporting Bessent's broader strategy of shifting Treasury borrowing toward shorter maturities.

Political Stakes

The hearing placed Bessent in a delicate position. Wall Street has grown skeptical of his market management. POLITICO reported that his credibility as a steward of U.S. financial markets faced threat after the bond-buying plan. The Economist's editorial board characterized the buybacks as risking politicization of America's debt market as Trump pressures officials to lower yields ahead of midterm elections.

For Republicans, Bessent's testimony reinforced the message that the administration remains in control and focused on American-first economic policy.

The Other Side

Not all economists blame Bessent's bond buybacks for market dysfunction. UBS chief economist Paul Donovan argued that bond markets are clearly concerned by the rapid rise in crude oil price and that Bessent's bond buyback plan has had no discernible impact.

The administration has explicitly tied stablecoin policy to dollar dominance, framing digital asset regulation as part of a broader strategy to reinforce America's financial system.

CoinDesk reported that Bessent portrayed Saudi Arabia's exit from the China-backed mBridge digital currency platform as a victory for dollar dominance. But Saudi Arabia said it had merely completed a planned trial of the platform and the project continues elsewhere—a more modest claim than Bessent's narrative suggested.

What's Next

Days after the hearing, Trump signed the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, which expands Iran sanctions and extends the Iran Sanctions Act for another five years while granting the president authority to impose tariffs of up to 100 percent on countries that remain major buyers of Russian oil and gas.

The GENIUS Act's regulatory regime for payment stablecoins is administered by the OCC, FDIC, Federal Reserve, and Treasury. Bessent is preparing talks with China on Iran's financial ties ahead of a Trump-Xi summit scheduled for late September, suggesting the Treasury's international negotiations will intensify.

The New York Times framed the hearing as a credibility test for Bessent in his quest to tame markets.

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