U.S. Treasury Secretary Scott Bessent has raised concerns regarding the Federal Reserve's independence in monetary policy, stating that its autonomy is increasingly threatened by what he describes as "mandate creep" into areas outside its core mission. In a recent post on X, he emphasized the need for the central bank to conduct a thorough review of its operations to safeguard its vital independence.
Bessent argued that the Fed's autonomy is essential for maintaining U.S. economic growth and stability. He characterized the Fed's monetary policy as a "jewel box" that should remain insulated from external pressures to ensure it continues to operate effectively. The suggestion of "mandate creep" has provoked significant criticism, which Bessent believes could undermine the Fed's credibility in managing monetary policy.
One specific area Bessent has called for scrutiny is the Federal Reserve's renovation project of its almost 100-year-old headquarters in Washington, D.C. He questioned the timing of this extensive project, especially given that the Fed is currently experiencing operating losses. While he did not specify who should conduct the review, he expressed uncertainty regarding the legal basis for the renovation.
Former President Donald Trump has been a vocal critic of Fed Chair Jerome Powell, repeatedly urging him to resign due to the Fed's reluctance to cut interest rates. Trump has also targeted the $2.5 billion renovation project, which has reportedly exceeded its budget, suggesting potential fraud as a reason to dismiss Powell. A recent Supreme Court ruling has clarified that the Fed chair can only be removed for cause, not merely for policy disagreements.
In an interview with CNBC, Bessent refrained from commenting on reports suggesting he advised Trump against firing Powell, stating that such decisions ultimately lie with the president. He drew a parallel between the Fed's situation and the Federal Aviation Administration, asserting that if similar operational mistakes were occurring in that agency, a thorough investigation would be warranted.
As speculation continues about Powell's future, Bessent has been mentioned as a potential candidate for the Fed chair position. However, Powell's term is scheduled to end in May 2026, and he is expected to remain a Fed governor until January 2028. Bessent noted that another governor seat will become available in January, opening up possibilities for changes in the Fed's leadership.
This ongoing discussion about the Federal Reserve's independence and operational transparency highlights the delicate balance between political influence and the necessity for a stable economic environment. As the situation evolves, stakeholders will be closely monitoring the implications for U.S. monetary policy and economic stability.
