This article first appeared on GuruFocus.

Treasury Secretary Scott Bessent says the U.S. fiscal picture improved in fiscal 2026, but his bigger signal for markets may be what comes next: more fiscal consolidation.

Bessent told the House Financial Services Committee Tuesday that the federal deficit fell to roughly 5.7% to 5.8% of GDP in fiscal 2026, down from what he called the astounding level of about 6.3% inherited by the Trump administration.

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We would have continued that fiscal contraction this year but for the tariff refunds, Bessent said.

We will talk about a fiscal consolidation that is coming, he added.

For investors, that puts federal spending, Treasury issuance and economic growth back in focus. A smaller deficit can ease some pressure on government borrowing over time, but tighter fiscal policy can also reduce an important source of demand if spending cuts or other measures become aggressive.

Bessent also argued that greater stablecoin adoption could support demand for dollar-denominated assets, particularly U.S. Treasuries. The U.S. Dollar Index rose 0.2% Tuesday morning.

His broader economic case was that the private sector has created more than 1 million jobs during President Donald Trump's second term and that real wages are outpacing inflation.

Recent August data, however, show a more complicated picture: headline CPI rose 3.4% from a year earlier, while average hourly earnings increased 3.1%.

Bessent also used the hearing to emphasize the administration's push to reshape U.S. participation in international institutions, including the IMF, World Bank and G20, around what he described as American economic interests.

The key market question is how quickly Bessent's promised fiscal consolidation becomes policy.

Investors should watch federal spending plans, Treasury borrowing requirements, deficit projections and any measures that could materially slow economic demand.

A credible decline in the deficit could ultimately help ease concerns around Treasury supply and long-term interest rates. But if consolidation arrives too quickly while monetary policy remains restrictive, it could also add another headwind for growth-sensitive stocks.

That makes Bessent's next fiscal steps potentially important for both bonds and equities.