Bessent's Market Intervention May Be Failing
US Treasury Secretary Scott Bessent has been intervening in currency and bond markets, but his efforts may be futile. He believes that market signals are not reflecting economic fundamentals accurately, and he's trying to correct this by manipulating exchange rates and interest rates.
The scale of the intervention is relatively small compared to the massive trading volumes in these markets. Bessent's team spent $5-10 billion supporting a weakening yen, while Japan chipped in another $53 billion. The impact on the yen has been negligible so far, with prices reverting to their previous levels.
Bessent's actions are reminiscent of the Plaza Accord and Louvre Accord, which were joint currency interventions by major advanced economies in the 1980s. However, these efforts did not match up well with major shifts in foreign-exchange markets, and they failed to break the back of currency speculators.
Bessent's transformation from a financial expert to a sycophant in Donald Trump's administration is also notable. He has become willing to support many of Trump's outrageous economic positions, including tariffs and growth targets.