BIS "knocks" the Federal Reserve: It should have a "people-oriented" approach, QE should be limited to emergencies, and for the first time calls for a moderate long-term interest rate.

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U.S. Treasury Secretary Bessent has once again publicly “rebuked” the Federal Reserve, demanding that the world’s most influential central bank return to its statutory responsibilities and serve the trust of the American people, rather than just asset owners.

On Friday, in a strongly worded op-ed published in The Wall Street Journal, Bessent described the Fed’s post-financial crisis policies as a dangerous “gain of function” experiment. He believes the overuse of unconventional policies, expansion of functions, and bureaucratic bloat are threatening the central bank’s independence. He made it clear that the use of unconventional policies such as QE must be limited to “truly urgent situations” and be conducted in coordination with other federal government departments.

Bessent stated that the Fed’s independence comes from public trust. The central bank must recommit to maintaining the confidence of the American people. To safeguard its own future and the stability of the U.S. economy, the Fed must reestablish its credibility as an independent institution focused on its statutory mission: maximum employment, stable prices, and moderate long-term interest rates.

What’s particularly notable is that this is the first time Bessent has listed “moderate long-term interest rates” alongside maximum employment and stable prices as the Fed’s three core statutory duties that must be prioritized in rebuilding its credibility. Traditionally, long-term interest rates are believed to be mainly determined by market forces. The Treasury Secretary’s direct “highlighting” of this has been viewed by the market as a highly unusual signal. It suggests that, in the Trump administration’s policy agenda, lowering long-term financing costs (especially Treasury yields tied to mortgage rates) has become a top priority.

Analysts view this series of tough statements as a prelude to a major shift in U.S. monetary policy.

According to a quick review by CICC titled “Bessent: The Fed Needs to Have Popular Character”, these remarks, in light of earlier comments about addressing a “national housing emergency,” may be paving the way for a return to balance sheet expansion, QE, and even yield curve control (YCC) and other financial repression policies. If this direction becomes reality, analysts believe it would have a substantial negative impact on the dollar while benefiting gold, silver, copper and other commodities, as well as A-shares and Hong Kong stock markets.

Bessent Slams Policy Mistakes: Extraordinary Tools Worsened Wealth Gap

In his article, Bessent sharply criticized the series of extraordinary monetary policy tools adopted by the Fed since the 2008 financial crisis, comparing them to an out-of-control “gain of function” experiment with unpredictable consequences, severely impacting the distribution landscape of the American economy.

The article points out that these policies have essentially created an implicit “backstop” for asset owners, leading to a high concentration of wealth among those who already own assets. In this cycle, large corporations have thrived by locking in cheap debt, while small companies reliant on floating-rate loans are squeezed when rates rise. Likewise, households with property enjoy asset appreciation thanks to protection from fixed-rate mortgages, but young and less affluent families are pushed out by high housing prices and bear the brunt of inflation.

Bessent quotes financial analyst Karen Petrou in her book, saying, “Unprecedented inequality has clearly shown that the wealth effect is too effective for the rich, but accelerates economic hardship for others.” He believes the Fed has failed in its inflation mandate and has instead exacerbated class and generational divides; its “wealth effect” policies aimed at spurring growth have backfired.

Criticizing Overstepping: Blurred Lines Between Monetary & Fiscal Policy, Independence Undermined

Bessent believes the Fed’s ever-expanding policy footprint has seriously threatened its institutional independence, with the main problem being its functions have “overstepped,” blurring the boundary between monetary and fiscal policy.

The article states that the Fed, through balance sheet policy, directly influences capital flows into certain industries—something that should be the domain of markets and elected officials. Moreover, the central bank’s role is deeply entangled with the Treasury’s debt management, which easily creates the impression that “monetary policy is being used to accommodate fiscal needs.” This dynamic creates “improper incentives” for fiscal irresponsibility in Washington, since Congress and the President always expect the Fed to step in when their policies fail.

Overexpansion in regulation is also a problem. Bessent points out the Dodd-Frank Act greatly expanded the Fed’s regulatory scope, making it the primary regulator of U.S. finance. Yet the 2023 collapse of Silicon Valley Bank precisely shows the conflict of interest in combining regulatory and monetary policy roles, undermining accountability. He recommends that professional separation be restored, allowing the FDIC and OCC to lead bank supervision.

Bessent’s Demands for the Fed: Return to Three Statutory Duties, Rediscover “Popular Character”

In response to the issues above, Bessent pointed the way forward for the Fed’s future: it must reduce distortions to the economy, return to its narrow statutory mandate, and rebuild public trust on that basis.

Bessent’s core demand is that the Fed pledge to the American people to regain public confidence. To achieve this, the central bank must focus on its three statutory tasks: maximum employment, stable prices, and achieving “moderate long-term interest rates.” He also calls for an honest, independent, and non-partisan comprehensive review of Fed policy, regulation, communication, personnel, and research.

The most critical policy suggestion is that unconventional policies like quantitative easing (QE) should only be used in “truly urgent situations” and in coordination with the federal government in future. This is seen as a direct repudiation of its policy path over the past decade, intended to end the Fed’s role as the “only game in town.”

Market Interpretation: Paving the Way for Financial Repression?

Such direct and public criticism of the Fed by the Treasury Secretary is extremely rare in U.S. history. Market analysts are trying to decipher deeper political motives and direct implications for investors.

According to CICC’s macro commentary, Bessent’s latest remarks, combined with the precedent of White House officials joining the Fed’s board, signify a notable strengthening of executive branch influence over monetary policy. The new phrase “moderate long-term interest rates” is seen as key to understanding future policy direction. It echoes repeated statements from the Trump administration about lowering 30-year mortgage rates, which are closely tied to 10-year Treasury yields.

As such, CICC believes this could open the door for a new round of financial repression policies (such as restarting QE or using YCC). These policies, designed to artificially suppress interest rates, would directly weaken the dollar. Against this backdrop, analysts predict that assets such as gold, silver, and copper, as well as Chinese A-shares and Hong Kong stocks, may benefit.

The following is a full translation of Bessent’s article:

The Federal Reserve’s “Gain-of-Function” Monetary Policy

This central bank is putting its independence at risk by straying from its narrow statutory mission

By Scott Bessent, September 5, 2025

As we saw during the COVID-19 pandemic, when a laboratory experiment escapes containment, it can cause severe damage. Once unleashed, it’s hard to recapture. The “unconventional” monetary policy tools launched after the 2008 financial crisis similarly transformed the Federal Reserve’s policy framework, with unpredictable consequences.

The Fed’s new operating model is, in reality, a “gain-of-function” monetary policy experiment. The overuse of unconventional policies, expansion of duties, and institutional bloat are threatening the central bank’s independence. The Fed must change course. Its standard toolbox has become too complex to manage and based on uncertain theories. Simple, measurable tools, focused on a limited statutory mission, are the clearest path to better outcomes and long-term independence.

Some may argue that the new tools created after 2008, along with market concentration, should let the Fed better perceive economic trends. At the very least, these “enhanced functions” should let the Fed guide the economy more effectively. But that hasn’t materialized. In 2009, the Fed forecast U.S. real GDP would accelerate to 4% in 2011. Instead, growth slowed to 1.6%. Cumulatively, the Fed overestimated real GDP by over $1 trillion across two years. Repeated forecast misses show the Fed’s excessive faith in its powers and reliance on expansionary fiscal policy to spark growth. When the Trump administration pivoted to tax cuts and deregulation, the Fed’s forecasts turned overly pessimistic, exposing model flaws and neglect of supply-side effects.

During and after the financial crisis, repeated Fed interventions effectively backstopped asset holders. This harmful dynamic concentrated national wealth with those already owning assets. In business, large firms thrived by locking in cheap debt while small, floating-rate-reliant firms got squeezed as rates rose. Homeowners saw property values jump and were mostly insulated due to fixed-rate mortgages. Meanwhile, young and low-income American families found themselves shut out of asset ownership and hit hardest by inflation, missing out on the asset boom.

By failing to hit its inflation mandate, the Fed has deepened class and generational divides. Its “wealth effect” approach to stimulating growth has backfired. Financial analyst Karen Petrou wrote in her 2021 book Engine of Inequality: “Unprecedented inequality is ironclad evidence of a wealth effect that’s too effective for the rich but worsens hardship for others.”

The Fed’s ever-expanding “footprint” has had far-reaching consequences for its independence. By extending its role into areas traditionally reserved for fiscal authorities, the Fed has blurred the line between monetary and fiscal policy. The central bank’s balance sheet policy directly influences which sectors receive capital, intruding into domains that should be left to markets and elected officials. The entanglement with Treasury debt management creates the sense that monetary policy is being used to satisfy fiscal needs. Expanding power has fostered a Washington culture of expecting the Fed to bail out failed fiscal decisions. Presidents and Congress are not held accountable; instead, they expect the Fed to rescue them in policy failure. This “only game in town” mindset creates perverse incentives for irresponsibility.

Regulatory overreach has made things worse. The Dodd-Frank Act greatly widened the Fed’s regulatory reach, making it America’s primary financial regulator. Fifteen years on, the results disappoint. Silicon Valley Bank’s 2023 collapse clearly shows the danger of combining regulatory and monetary-policy roles. The Fed now regulates banks, lends to them, and sets their profit models—an inherent conflict that blurs accountability and puts independence at risk. A clearer framework would restore specialization: giving the FDIC and OCC lead powers over bank regulation, while the Fed should focus on macro-monitoring, lender-of-last-resort liquidity backstops, and monetary policy.

Credibility and political legitimacy are the keys to independence. Both have been put at risk by the Fed’s overreach. Over-intervention has brought severe distributional effects, weakened credibility, and threatened independence. Looking ahead, the Fed must reduce its distortions to the economy. Unconventional policies like quantitative easing must be reserved for true emergencies and coordinated with other federal departments. At the same time, the entire institution should undergo an honest, independent, nonpartisan review—including monetary policy, regulation, communication, staffing, and research.

The U.S. faces short- and medium-term economic challenges and the lasting consequence of a central bank that has put its independence at risk. The Fed’s independence proceeds from public trust. The central bank must recommit to maintaining the confidence of the American people. For its own future and for the stability of the U.S. economy, the Fed must reestablish its credibility—as an independent institution, focused on its statutory mission: maximum employment, stable prices, and moderate long-term interest rates.

Bessent is U.S. Treasury Secretary. A longer version of this article will appear in the upcoming issue of International Economics magazine.

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