Treasury Secretary Scott Bessent wrote a shocking OpEd in the Weekend WSJ called "The Fed's 'Gain of Function' Monetary Policy". I rarely call something a must-read, but this article is a must-read for anyone interested in the Fed.
In the article, Bessent lays out a blistering case that the Fed has far exceeded its original mandate, particularly since the 2008 financial crisis. As someone who has closely watched the Fed since that time, I found myself agreeing with many of his points. The article is so quotable; I'll give you a few provocative examples to encourage you to read it.
"Successive interventions during and after the financial crisis of 2008 created what amounted to a de facto backstop for asset owners."
So, in other words, he is saying that the Fed has been bailing out rich people since 2008. By doing so their policies have concentrated wealth more and more at the top of the food chain. Not good.
"Entanglement with Treasury debt management creates the perception that monetary policy is being used to accommodate fiscal needs. Expanded powers have fostered a culture in Washington that relies on the Fed to bail out the government after poor fiscal choices."
This is an explosive statement, yet it's absolutely true because of QE. The Fed was buying half of all new UST debt sold on the open market from 2009 -2022. That distortion enabled Congress to spend more and more tax dollars while not really feeling the pain of the consequences short-term. Also not good.
"The Fed now regulates, lends to and sets the profitability calculus for the banks it oversees...A more coherent framework would restore specialization: empowering the [FDIC] and [OCC] to lead bank supervision, while leaving the Fed to macro surveillance, lender-of-last-resort liquidity and monetary policy."
This quote directly attacks the Dodd-Frank bill, which among many things greatly expanded the Fed's supervisory power over large banks.
"Unconventional policies such as [QE] should be used only in true emergencies in coordination with the rest of the federal government."
Perhaps the most important statement in the article. QE started in 2009 and kept going way past the point when it was needed - up until 2022. Big mistake. QE is the reason why we have runaway debt and inflation - and why housing is unaffordable for so many Americans.
This OpEd is very important because I believe it lays out the Administration's goals for refocusing the Fed on its original mandate - low inflation and full employment via monetary policy. This is a sneak preview of what the new Fed Chair will be likely expected to deliver in 2026, and I'm certain will be a topic of conversation in Senate hearings for the new Fed governors.
It's a bold, provocative move. The sacred cow is being slain folks.
