US Treasury Secretary Scott Bessent appeared before the House Financial Services Committee on Tuesday to defend the Trump administration's recent economic policies. Although the hearing was initially scheduled to focus on reforms at the International Monetary Fund and the World Bank, lawmakers quickly pivoted to more immediate concerns, including bond markets, currency exchange rates, inflation, artificial intelligence, and the ongoing conflict with Iran.

With the Iran war now in its seventh month, the US is actively seeking to further isolate Iran from the Western financial system. Early in the hearing, several protesters rose to demand an end to sanctions and the war against Iran, forcing Bessent to briefly pause his opening statement before the demonstrators were escorted from the room.

Addressing Rising Bond Yields as a 'Global Issue'

Prior to the hearing, Bessent told reporters that the recent rise in US Treasury yields stems from "global issues." On Tuesday, the yield on the 10-year US Treasury note climbed to its highest level since 2007, coinciding with a sell-off in bond markets across several major global economies. Market analysts attribute the upward pressure on yields to multiple factors, including higher oil prices, market expectations of a Fed rate hike this week, competition for capital driven by AI spending, and concerns over the US fiscal outlook.

During the hearing, Bessent acknowledged that the surge in 10-year yields reflects "the need to solve the deficit problem," along with other contributing influences. The Treasury Department recently doubled the size of its long-term bond buyback program. Bessent stated that one of the objectives of these buybacks is to inject liquidity into the market to counteract rising yields, or at least moderate their ascent. However, yields continued to climb even after the buybacks were executed. Bessent argued that the program prevented an even steeper increase and underscored the credibility of US fiscal markets.

"There is a counterfactual—what would have happened if we hadn't done this—and we subsequently conducted the two most successful Treasury auctions in 20 years," he said at the hearing. "Since President Trump took office, the US bond market has been the best-performing bond market in the developed world."

Defending Yen Intervention with Minimal Cost

The issue of the yen also became a central focus of questioning. Bessent defended the Treasury's coordinated currency intervention with Japan, noting that the US purchased only a "nominal amount" of yen to signal support for Japanese policy, and that the operation actually earned the US tens of millions of dollars. "A stronger yen is more favorable for US exports," he explained. "A stronger yen means the Japanese government doesn't have to sell US assets to fund its currency intervention."

On July 31, after the yen hit a 40-year low against the dollar, the US Treasury and Japan jointly intervened to buy the currency. Japan subsequently executed record-breaking yen purchases, which involved selling dollars and potentially US Treasuries. Japan is the largest foreign holder of US debt. Treasury observers have calculated that the department used notably less than $1 billion in its yen intervention. In comparison, Japan used a record $96.4 billion for currency intervention from late July to late August. Bessent added that, although profit "wasn't the goal," the Treasury still "made tens of millions of dollars" on the yen operation.

In recent weeks, Bessent has signaled a desire to see the Bank of Japan support the yen through interest rate hikes, stating that his judgment on Japanese monetary policy influenced the intervention decision. The BOJ is scheduled to hold a policy meeting later this week. Last week, Bessent publicly challenged traders at an event: "I'm the house now, so when we intervene in the yen, I have a pretty good insight into what Japan, the BOJ, and Japanese policymakers are going to do. If you want to bet against me, go ahead."

In response to a letter from Democratic Senator Elizabeth Warren regarding currency intervention, Bessent stated last month that "a disorderly yen market could trigger forced liquidation, which could shake global markets and ultimately increase borrowing costs for American households and businesses."

Facing Inflation Questions and Highlighting Poverty Reduction

Several Democratic lawmakers pressed Bessent on inflation and the rising cost of living, linking these issues to the Iran war and elevated global oil prices. Bessent deflected blame for inflation onto the previous Biden administration, asserting that Americans are better off under the Trump administration. Citing the latest Census Bureau data, he noted that the US poverty rate fell by 0.5 percentage points to 10.2% last year—the lowest level on record—representing 34.5 million people living in poverty. During the same period, median household income grew by 2.6% to a record $87,460.

Bessent also faced questions on another Trump proposal: sending $5,000 to every American if Republicans maintain control of Congress after the November elections. Bessent stated that if Congress approves the plan and it is deemed necessary, he would work with House Speaker Mike Johnson to facilitate the payments.

On the dollar, Bessent emphasized the "certainty" brought by the administration's policies. "A strong dollar isn't just a price on a screen; it's a set of behaviors," he said. "In this administration, we are creating regulatory certainty, tax certainty, trade certainty, and energy certainty, and that's drawing trillions of dollars into the US."

AI Safety Takes Center Stage

Artificial intelligence safety emerged as another major topic during the hearing. Earlier, Anthropic CEO Dario Amodei called on AI companies to slow technological progress to ensure safety. OpenAI's Sam Altman and Elon Musk, who runs xAI, have expressed similar concerns. In response to lawmakers' questions, Bessent revealed that the Treasury has been "working on safety issues non-stop" since the release of Mythos earlier this year, collaborating with banks to share cybersecurity software vulnerability patches exposed by Anthropic's models. He also mentioned that the government has compelled Anthropic to withdraw a model used for safety checks, stressing that AI labs must be accountable for their creations.

"I can tell you that what we should not do on safety is grant these labs liability exemptions, which is exactly what they’ve asked for," Bessent said. "The best way to ensure safety is for the creators to be responsible for what they build, generate, and release into the economy for the American people and the world."