U.S. Treasury Secretary Predicts Swift Return to 2% Inflation Target

Optimistic Outlook for Housing Market and Fiscal Deficit Reduction / AFP

U.S. Treasury Secretary Scott Bessent has expressed strong confidence that inflation could soon align with the Federal Reserve’s 2% target, delivering an upbeat forecast for the American economy. In an in-depth interview with Bloomberg TV’s David Westin on February 28, 2025, Bessent tackled key economic challenges, including the persistent effects of what he called "Bidenflation." He projected that within the next 6 to 12 months, a strategic mix of deregulation, expanded U.S. energy production, and clarity on extending the 2017 tax cuts could drive inflation down to the Fed’s goal at a rapid pace. This outlook follows January 2025 figures showing the core Personal Consumption Expenditures (PCE) price index, a preferred inflation gauge for the Fed, climbing 2.6% year-over-year. While this rate exceeds the target, it indicates a trajectory toward stabilization. Bessent’s comments highlight a comprehensive plan under the Trump administration to reshape economic policies, offering a glimpse into how these long-tail strategies might impact households and businesses across the nation.

Turning to the struggling U.S. housing market, Bessent forecasted a recovery within weeks, despite its current deep freeze. With 30-year fixed-rate mortgage interest rates holding above 6% and 10-year U.S. Treasury yields at roughly 4.2%, well above the 10-year average of 2.5%, affordability remains a major hurdle for homebuyers. January 2025 data revealed existing home sales contracts dropping to unprecedented lows, driven by a combination of severe winter weather, lofty home prices, and steep borrowing costs that have kept buyers on the sidelines. New housing starts also fell during the month, as builders face high financing expenses and a rising inventory of unsold homes. Despite these headwinds, Bessent sees light ahead, linking the market’s woes to short-term factors like California wildfires and Northeast cold snaps. He expects a resurgence as the spring homebuying season nears, a pivotal period for real estate momentum. This perspective suggests that targeted policy tweaks could unlock the housing market’s potential, setting the stage for a stronger 2025.

On fiscal matters, Bessent underscored the Trump administration’s dedication to reducing the federal budget deficit, currently estimated to surpass 6% of GDP in 2025. He pointed to tariffs as a cornerstone of this effort, predicting they could deliver significant revenue over the next decade and noting early signs of success. During the interview, he shared that President Trump had asked about the feasibility of balancing the federal budget, a lofty ambition given today’s fiscal landscape. Bessent admitted the challenge but stressed ongoing efforts to evaluate federal spending thoroughly. He highlighted the role of the Department of Government Efficiency (DOGE), headed by Tesla CEO Elon Musk, in rooting out wasteful spending and fraudulent practices within government programs. Bessent teased upcoming announcements from DOGE’s work, suggesting that fresh insights into budget savings might surface soon. This focus on fiscal responsibility ties into a larger mission to strengthen the U.S. economy while tackling the long-term burden of deficit growth.

Digging deeper into the housing market’s dynamics, Bessent’s expectation of a swift turnaround relies on more than just seasonal shifts. The relationship between mortgage interest rates and Treasury yields is crucial; with yields elevated, borrowing costs have suppressed demand, especially among first-time buyers. Analysts observe that January’s drop in housing starts reflects builders’ hesitancy amid costly loans and an oversupply of unsold properties, worsened by regional disruptions like natural disasters. Still, Bessent’s hopeful stance may stem from anticipated policy moves, such as deregulation or tax incentives, that could ease construction costs and spur buyer interest. Should mortgage interest rates dip even modestly in 2025, as some projections suggest, the housing market recovery Bessent envisions could take hold, aligning with his timeline and lifting economic optimism into the spring season.

Bessent’s fiscal deficit reduction plan places heavy emphasis on tariffs, a tactic with both opportunities and risks. By raising duties on imported goods, the administration seeks to boost domestic revenue, possibly reducing the need for drastic cuts in politically sensitive areas like entitlements. Past tariff policies under Trump generated billions annually, and Bessent anticipates a similar boost in 2025, though this approach could elevate consumer prices and strain trade relationships with nations like Canada and Mexico. His assurance in this strategy reflects a bold bet: that tariff revenue, paired with DOGE’s spending reforms, can narrow the deficit without hampering economic expansion. His reference to federal spending fraud, now under DOGE’s microscope, adds intrigue, pointing to inefficiencies that, if corrected, could unlock substantial savings. This layered approach aims to produce concrete outcomes within Trump’s first year back in office, a timeframe Bessent flagged as critical for proving economic stewardship.

Bessent’s overarching economic vision weaves these elements into a cohesive narrative, envisioning a thriving U.S. economy by mid-to-late 2025. His inflation prediction rests on supply-side gains like energy production, which could cut costs across sectors, while his housing market confidence assumes a quick rebound from current depths. The fiscal deficit strategy blends revenue growth with spending discipline, a delicate balance that will test the administration’s policy execution. Notably, Bessent affirmed that within 6 to 12 months, President Trump will bear full responsibility for the economy’s path, underscoring the urgency of this period. As DOGE uncovers savings and tariffs roll out, the coming weeks and months will determine whether these bold objectives translate into real progress, shaping the economic future for years ahead.