Treasury Secretary Scott Bessent blasted the Federal Reserve for putting its own independence at risk through “mission creep” and called for an independent review of the US central bank, including its monetary policy.
“At the heart of independence lies credibility and political legitimacy,” Bessent said in an opinion piece in the Wall Street Journal published Friday. “Both have been jeopardized by the Fed’s expansion beyond its mandate.”
The column expanded on Bessent’s regular objections to the Fed having engaged in a “gain-of-function monetary policy experiment.” Among his criticisms: The Fed pumped too much stimulus via quantitative easing after the 2007-09 financial crisis and undertook excessive regulation of the banking system.
“Unconventional policies such as quantitative easing should be used only in true emergencies, in coordination with the rest of the federal government,” Bessent said.
After having repeatedly called on Fed Chair Jerome Powell to conduct an internal review of the Fed’s non-monetary policy functions, Bessent expanded his vision of a Fed investigation.
‘Expect an Answer’
“There must also be an honest, independent, nonpartisan review of the entire institution, including monetary policy, regulation, communications, staffing and research,” he said.
Bessent also specified that he expects the Fed to respond to his request for an internal review, speaking in an interview with the International Economy magazine that accompanied a longer version of his Journal comments.
“I expect an answer on the internal review that I’ve called for,” he said. “Good stewardship is earned, not jawboned.”
The Treasury didn’t immediately respond to questions about whether the internal-review request has been sent directly to the Fed. Bessent and Powell typically meet weekly for breakfast when they are both in Washington, alternating between the two institutions for their meals in what Bessent has described as “a home game and away game.”
Asked about Bessent’s expectation of a response, the Fed didn’t have an immediate comment.
Regulation Overhaul
On regulation, Bessent called in his Journal column for “a more coherent framework” that empowers the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency “to lead bank supervision, while leaving the Fed to macro surveillance, lender-of-last-resort liquidity and monetary policy.”
Bessent stopped short of specific criticisms of the Fed’s moves during the Covid crisis — when Fed Chair Jerome Powell worked with President Donald Trump’s first Treasury chief, Steven Mnuchin, to prevent a collapse in the flow of credit. Fed programs at that time spanned support for the government debt market to backstops for corporate and municipal borrowers.
But he faulted the Fed for the waves of QE implemented after 2008, something that “amounted to a de-facto backstop for asset owners” and contributed to rising inequality. Big companies locked in low borrowing costs and homeowners enjoyed valuation gains on their properties, he said.
“Meanwhile, younger and less affluent households, shut out of ownership and hit hardest by inflation, missed out on appreciation,” Bessent said.
Written by: Chris Anstey and Daniel Flatley — With assistance from Michael McKee @Bloomberg
The post “Bessent Wants Independent Fed Review, Including Monetary Policy” first appeared on Bloomberg