Closely following Trump in criticizing the Federal Reserve, the US Treasury Secretary said: "Taking on too much, independence is at risk, all operations including monetary policy must be reviewed."

```

Closely following U.S. President Trump, Secretary of the Treasury Besent also fiercely criticized the Federal Reserve. As the public increasingly questions whether Trump’s threats to fire Fed governors undermine the Fed’s independence, Besent, on the contrary, accuses the Fed itself, believing that problems within the Fed over the years have jeopardized its independence.

On Friday the 5th Eastern Time, a media outlet published a guest column by Besent, in which he harshly criticized the Fed for putting its own independence at risk through “function expansion” and called for an independent and comprehensive review of the Fed. This marks the latest round of attacks on the Fed from senior Trump administration officials.

In the article, Besent points out that the Fed’s expansion of responsibilities beyond its legal scope has damaged its own credibility and political legitimacy. Overuse of non-standard policies, mission creep, and institutional bloat threaten the central bank’s independence. The article states:

“The essence of independence is credibility and political legitimacy. The Fed’s expansion has exceeded its mandate, and both of these have come under threat.”

Besent’s criticism echoes Trump’s stance. After Friday’s release of a weak U.S. non-farm payroll report for August, Trump immediately called out and criticized Fed Chair Powell, saying he “should have cut rates long ago” and is always too late with action.

Besent’s column marks an escalation in the Trump administration’s criticism of the Fed, moving beyond mere demands for rate cuts to questioning the overall operational model of the Fed and the very foundation of its independence.

Calling for a Comprehensive Review of the Fed

In his column, Besent argues that the excessive use of non-standard policy tools, the expansion of functions, and the institutional bloat all threaten the independence of the Fed as a central bank.

He explicitly calls for, for the first time:

“There must be an honest, independent, and nonpartisan review of the (Federal Reserve) as an entire institution, including its monetary policy, regulation, communications, staffing, and research.”

This demand is broader than his previous suggestions focused only on internal reviews of non-monetary policy functions.

In a magazine interview disclosed Friday, Besent also said he looked forward to the Fed’s reply to his call for an internal review, emphasizing, “Good management is earned through action, not empty talk.”

Media reported that Besent and Powell usually have breakfast together weekly in Washington, taking turns at each other’s institutions. It is not yet clear whether the Treasury has officially called on the Fed to conduct an internal review; the Treasury has not responded, and the Fed has not commented.

Calling for Overhaul of the Regulatory Framework

Besent believes the Fed’s ever-expanding scope of functions has had a deep impact on its independence. By extending responsibilities into areas traditionally handled by the fiscal authorities, the Fed has blurred the line between monetary policy and fiscal policy.

He specifically criticizes the post-financial-crisis Dodd-Frank Act, saying it massively expanded the Fed’s regulatory reach and turned it into the dominant regulator of the American financial industry.

The article states, “Fifteen years have passed, and the results are disappointing.” Besent cites the 2023 collapse of Silicon Valley Bank as an example of the dangers of combining regulation and monetary policy.

Besent proposes establishing a “more coherent framework” that authorizes the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) to “lead banking supervision, while letting the Fed focus on macro monitoring, lender-of-last-resort liquidity, and monetary policy.”

Criticizing “Gain of Function” Monetary Policy Experiments

In his column, Besent likens the Fed’s policies to lab-engineered experiments witnessed during the COVID-19 pandemic, saying that once such experiments are released, they cannot easily be recalled.

Besent writes, “The Fed’s new operating model is essentially a gain-of-function monetary policy experiment.”

He believes that the “unconventional” monetary policy tools released after the 2008 financial crisis have changed the Fed’s policy system and brought unpredictable consequences.

Besent cites data to prove the Fed’s poor forecasting ability. In 2009, the Fed forecast that real GDP would accelerate to 4% in 2011, but in fact, by 2011, U.S. GDP growth had slowed to 1.6%. Over that period, the Fed overestimated cumulative two-year forecasts of real GDP by more than $1 trillion.

Criticizing QE for Worsening Inequality

Besent’s article also criticizes the Fed’s post-2008 quantitative easing (QE) policies, saying such QE “amounts to support for asset holders” and exacerbates the wealth gap.

He points out that large corporations benefit by locking in low-cost debt, homeowners enjoy property appreciation, while “relatively younger and less wealthy families are excluded from homeownership, are hit hardest by inflation, and miss out on opportunities for asset appreciation.”

Besent believes the Fed’s strategy of fostering growth by stimulating the wealth effect has backfired.

He quotes financial analyst Karen Petrou from her book Engine of Inequality: “Unprecedented inequality clearly shows that the wealth effect is all too effective for the wealthy, but for everyone else, it is a catalyst for economic hardship.”

Government Officials Jointly Criticize Fed Policy

The non-farm payroll report released Friday showed that in August, the U.S. added only 22,000 non-farm jobs, far below Wall Street’s expected increase of 75,000. The August unemployment rate also rose to 4.3%, the highest since 2021. After the report, several Trump administration officials blamed the Fed.

Trump posted on his social media: “Powell, always too late, should have cut interest rates long ago. As usual, he’s too late again!”

U.S. Secretary of Labor Lori Chavez-DeRemer said in a media interview Friday, “Powell should be ashamed of this report because he hasn’t done his job.” She believes the Fed needs to cut interest rates to spur businesses to increase hiring.

Labor expert Rob Wilson also supports this view, saying “August’s weak jobs data clearly shows rates may be too high, just as President Trump asserted.” He pointed out that higher rates are slowing economic growth, and employment data are weak enough to warrant a policy rethink.

Risk DisclaimerThe market carries risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the individual investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this information is at your own risk. ```