Scott Bessent on the nationwide debt: ‘There’s nothing magic in regards to the $40 trillion quantity’

“There’s nothing magic about the $40 trillion number,” Bessent told CNBC‘s Sara Eisen in an exclusive interview on Squawk on the Street Thursday. “And we can grow our way out of that.”

The remark, delivered with the same even cadence he’s used to talk down bond-market jitters all year, was Bessent’s clearest attempt yet to reframe a debt milestone that has alarmed economists and fueled a selloff in long-dated Treasurys. The gross national debt crossed the $40 trillion mark, according to Treasury Department data, just five months after hitting $39 trillion in March.

Bessent’s comments came a day after the Treasury said it would at least double the size of its buyback operations for longer-dated securities—from a maximum of $2 billion per operation to “at least” $4 billion—in a bid to shore up liquidity in a bond market he described as thinly traded and, in his view, mispriced. The change takes effect Sept. 9 and applies through Nov. 4, covering the 10-to-20-year and 20-to-30-year sectors that have faced what CNBC has called a “buyers’ strike” since late June.

“We believe that there are many underlying factors in turn that the market is not looking at, and we are going to make a market… in these,” Bessent said. “I would note that it could be more than the $4 billion per issue.”

The fundamentals argument

Bessent’s core pitch is the deficit is smaller than it looks, and the money the government is “losing” isn’t being lost at all. He said the U.S. ran a fiscal consolidation in calendar year 2025, with the deficit landing around 5.7% of GDP. Part of what has inflated the headline deficit, he argued, are one-time tariff refunds that won’t recur: 2026 tariff income, he said, should roughly match 2025 levels as U.S. Trade Representative Jamieson Greer reimplements duties through the Section 301 process.

The other major drag on revenue, he said, is the cost of letting companies immediately expense new factories, equipment, and farm structures. Bessent said he doesn’t count that as spending.

“That is actually an investment in the future and we’re increasing the tax base,” he said. “That is what measures the wealth of a nation … the ability to increase after-tax return on capital.”

He described the strategy in physical terms: “Think of it as pulling back the slingshot here. We have a lot of potential energy that will turn into kinetic energy during this year, next year, as these factories come online.”

Asked directly whether the administration believes it has already seen the worst of the deficit, Bessent didn’t hedge.

“I think the very, very good chance we have,” he said, pointing to a coming joint effort with OMB Director Russell Vought and a separate crackdown led by the vice president’s Fraud Task Force that he said could “save several hundred billion dollars.”

He also teased a broader fiscal-consolidation announcement from the White House “probably at the end of this week, beginning of next week,” covering both spending cuts and revenue measures.

The deficit question

Fortune reported earlier this month Bessent has leaned unusually hard on short-term Treasury bills to finance the roughly $2 trillion annual deficit, taking advantage of a 3.8% three-month bill yield versus a 30-year rate that has traded above 5%—a multi-decade high. That approach holds down reported borrowing costs today, but leaves the government more exposed if inflation or rates rise, according to minutes from the Treasury Borrowing Advisory Committee (TBAC), the panel of bond dealers and investors that advise Treasury on its own funding.

Those same TBAC minutes, released Aug. 5, warned that at current auction sizes, the government faces a $1.45 trillion funding shortfall in fiscal years 2027-28. Rising interest costs already drove the biggest jump in Treasury outlays this year—up $120 billion—and the government now spends more than $1 trillion annually just servicing debt, more than the U.S. spends on national defense.

Jon Hilsenrath, the longtime Federal Reserve watcher who spent decades at The Wall Street Journal and now runs Serpa Pinto Advisory, previously told Fortune he sees a collision brewing between the Treasury’s bill-heavy strategy and the Fed’s own moves under new Chair Kevin Warsh to shrink its balance sheet—which dealers expect to push the Fed toward shorter maturities just as Treasury is forced back toward longer-term bonds to refinance.

“It always comes back to fundamentals,” Hilsenrath said. “Trump and a new Congress came into power and chose not to do anything about the deficit.”

Notably, the strategy predates Bessent. It was his predecessor, Janet Yellen, who first leaned on short-term bills to fund deficits—a tactic Bessent himself criticized in 2024, when he amplified an analysis by economists Stephen Miran and Nouriel Roubini accusing Yellen’s Treasury of “activist Treasury issuance” designed to flatter the economy ahead of the election.

Skepticism from the bond market

Eisen pressed Bessent on whether the buyback signal was more theater than substance, noting Wednesday’s Treasury rally—yields fell as much as 9 basis points on the 30-year bond after the buyback news—had already partly reversed by Thursday morning. Bessent didn’t back down from the possibility of going further.

“We have a big toolkit, so we will see,” he said, though he insisted the moves aren’t a response to any particular yield level. “It’s not if the market cooperates. It’s: we will see what the conditions are, and we will analyze them then.”

He also dismissed the idea the buyback push constrains Warsh, who has signaled openness to shrinking the Fed’s balance sheet or raising rates if inflation stays elevated.

“I think that the Treasury and the Fed would work together if there was any change in the balance sheet,” Bessent said, adding the buyback decision “has nothing to do” with the rate outlook.

Inflation, jobs, and the dollar

Bessent argued headline inflation—pushed higher recently by Brent crude near $94 a barrel amid the ongoing conflict with Iran—is masking a friendlier underlying picture. He pointed to slower wage growth in hospitality, gains for the bottom 25% of earners, and what he called the “biggest decrease in pharma prices” on record.

“The core inflation is down,” he said. “We aren’t seeing anything that says that the second-order effects are spilling over into core inflation.”

On the labor market, where a soft jobs report last month stoked concern about cracks in the economy, Bessent called the data “quite noisy” and credited tighter immigration enforcement for reducing the number of jobs the economy needs to create. He pointed to manufacturing and construction employment at 15-year highs.

He also waved off recent dollar weakness.

“The U.S. is a big service economy. We don’t respond to the trade-weighted dollar,” he said, describing the greenback as “very, very stable” against top trading partners Canada and Mexico and insisting the administration maintains “a strong dollar policy.”

For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.