Bessent says inflation ‘has nothing to do with tariffs’ as U.S. rolls them back: Full interview

Treasury Secretary Scott Bessent told Meet the Press that inflation is being driven by the service economy and that tariffs "have nothing to do" with the current rise in prices. His remarks come as the U.S. rolls back tariffs on certain food products (a Trump administration decision), suggesting tariff changes are unlikely to materially alter near-term inflation dynamics or force a reassessment of monetary-policy direction.

Analysis

Market structure: A services-driven inflation regime favors firms with recurring pricing power (franchised QSR, subscription services) and penalizes long-duration, rate-sensitive growth assets. Expect corporate margin dispersion: service companies that can pass through 2–4% annual wage inflation will widen spreads versus low-margin experiential providers; goods-price disinflation limits upside for commodity-linked exporters. Across assets, bond yields should remain range-bound at higher levels than pre-2022 — keeping duration premium elevated — while the USD is likelier to stay supported if real yields remain positive relative to peers.

Risk assessment: Tail risks include a Fed pivot (cut within 6–9 months) or a supply shock (energy/food) that would flip correlations and force rapid re-risking; both are low probability but high impact. Near-term (days–weeks) market moves will hinge on monthly CPI services prints and Fed minutes; medium-term (3–9 months) outcomes depend on wage/shelter trajectories and election-driven trade policy volatility. Hidden dependencies: corporate pass-through ability, labor supply elasticity, and fiscal stimulus timing can materially change inflation persistence.

Trade implications: Favor short-duration interest-rate exposure and select service-sector equities with scalable pricing power. Construct 2–3% portfolio allocations to floating-rate product (FLOT) and liquid T-bills (BIL) to reduce rate sensitivity; overweight MCD (1–2% position) and underweight DRI (equal notional) to express pricing-power dispersion over 3–9 months. Use 3-month put spreads on QQQ (buy 1–2% notional protection targeting ~7–10% downside) to hedge a rate-driven tech derate.

Contrarian angles: The market underestimates idiosyncratic tariff impacts—rollback can materially widen margins for specific food processors (e.g., TSN, KHC) over 1–3 quarters even if headline inflation is unchanged. Historical parallels (post-2008 shelter lags) warn that shelter-driven inflation can keep terminal rates elevated longer than markets expect; mispricing exists in long-duration REITs and growth stocks. Watch for political re-escalation of tariffs as a 30–60 day catalyst that would abruptly reprice supply-chain beneficiaries and agri names.

Key Decisions for Investors

• Reduce portfolio duration: trim long Treasury exposure by 2–4% of NAV and allocate to floating-rate notes (FLOT) and ultrashort Treasuries (BIL) to cut interest-rate sensitivity for the next 3–9 months.
• Establish a relative-value pair: go long McDonald's (MCD) 1–2% weight and short Darden Restaurants (DRI) equal notional to capture pricing-power resilience in QSR versus casual dining over a 3–9 month horizon; rebalance if services CPI ex-housing deviates ±0.25% month-over-month.
• Hedge equity growth risk: buy 3-month put-spreads on QQQ sized to 1–2% of portfolio notional (e.g., buy 7.5% OTM puts and sell 12.5% OTM) to protect against a 7–10% tech drawdown tied to sticky services inflation and rate re-pricing.
• Tactical commodity/agri short: initiate a small (0.5–1% NAV) short in broad agricultural exposure (e.g., DBA) for 1–3 months, capitalizing on limited downward pressure from targeted food tariff rollbacks—exit if USDA crop reports or CPI food prints surprise +3% on month.
• Opportunistic REIT rotation: reduce exposure to long-duration, office/industrial REITs and redeploy 1–2% NAV into top-tier apartment REITs (AVB or EQR) to play rent-recovery fundamentals over 6–12 months, but cap exposure if 10yr yield declines >50bp from current levels.