US Treasury's Bessent says he was wrong when he said tariffs could be inflationary

By David Lawder and Andrea Shalal WASHINGTON, Feb 4 (Reuters) – U.S. Treasury Secretary Scott Bessent on Wednesday said he was wrong when he and his Key Square investment firm told partners in January 2024 – before Donald Trump won election to a second stint as president – that "tariffs are inflationary." Grilled about the document during an often-heated House of Representatives Financial Services Committee hearing, Bessent said he wished to correct the record.  "If I was mistaken, I want to correct it. And I was also mistaken when I said the tariffs could be inflationary," Bessent, a Trump appointee, told lawmakers. 'THE DOG THAT DIDN'T BARK' Bessent said the U.S. economy is growing and inflation is coming down despite a slew of tariffs imposed by Trump since returning to office in January 2025.  "So tariff inflation was the dog that didn't bark," Bessent told lawmakers.  U.S. data last month showed a larger-than-expected rise in the Producer Price Index in December, suggesting inflation could pick up in the months ahead. Federal Reserve Chair Jerome Powell said last week that tariff pass-through to goods prices by companies was holding inflation at elevated levels.  Democrats used the hearing, nominally about the Treasury's Financial Stability Oversight Council annual report, to hammer Bessent over tariffs. Representative Maxine Waters, the Financial Services Committee's top Democrat, took the first crack at Bessent on the matter, resulting in a stormy exchange reminiscent of her clashes as the panel's chair with Trump's first-term Treasury chief, Steven Mnuchin. Waters referred to the same Key Square letter to investors, which said that tariff inflation would strengthen the dollar, asking Bessent to answer "yes" or "no" whether tariffs cause inflation. Bessent said San Francisco Federal Reserve data shows that tariffs do not cause inflation. That prompted Waters to say that prices for coffee and bananas rose after Trump imposed tariffs on countries growing these crops, and that tariffs on steel, lumber and appliances were raising costs for homebuilders, adding to housing inflation. When Bessent shot back that a surge of immigrants was responsible for inflation in housing costs, Waters repeated the refrain, "Reclaiming my time," then asked the committee's Republican chair French Hill: "Can you shut him up?" Bessent's comment that he was wrong about tariffs and inflation came later in the hearing when Democrat Sean Casten pressed him on whether he wanted to correct his remarks to Waters, or his letter to investors. VIEWS ON FED INDEPENDENCE Democrats also sought to press Bessent on whether he supports Federal Reserve independence or believes that Trump has a constitutional right to fire the Fed chair or other board members over policy disputes. Bessent responded that he has no opinion about firing authority but considers the central bank an independent agency. However, Bessent told the committee that there were "varying opinions" within the administration about a legal doctrine called the "unitary executive" theory that envisions vast executive authority for a president. Bessent said he is not a lawyer and the issue will have to be decided by the U.S. Supreme Court, which last month heard arguments concerning Trump's attempt last year to fire Fed Governor Lisa Cook. A ruling is expected by the end of June. (Reporting by David Lawder and Andrea Shalal; Editing by Will Dunham and Franklin Paul)

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