The writing’s on the wall, and it’s so large by now that Stevie Wonder could read it.
Let me preface this by saying no one’s more exhausted with laments for lost Fed independence than I am.
When it comes to stories that command a lot of repetitive attention, I wonder if it occurs to readers that if you’re tired of reading about it, chances are I’m exhausted with writing about it.
It takes more mental bandwidth to write something that it does to read something someone else wrote, so the next time you think, “Gosh, I’m worn out with this topic,” spare a thought for me.
With that out of the way, Scott Bessent on Monday showed up on CNBC where, during a short interview, he appeared to elaborate on Kevin Warsh’s “regime change” rhetoric vis-à-vis the Fed, which is to say he hinted at changing its institutional structure.
“What we need to do is examine the entire Federal Reserve institution,” Bessent told Joe Kernen, while suggesting the organization hasn’t always “succeeded in its mission.”
I agree. Just not if the one doing the “examining” is Donald Trump, nor any other populist for that matter. Forget Trump for a minute. I’d be just as nervous about this prospective overhaul if it were being undertaken by an Alexandria Ocasio-Cortez administration.
If you want to “audit” (to employ one of the more popular Fed memes), examine or even reimagine the Fed, that’s something worth looking into, but no populists on either side of the political spectrum can be involved in those discussions.
Letting a populist demagogue undertake a restructuring of the central bank is a bad idea even as bad ideas go. There are some exceptions, but populists tend to lean hard into expansionary monetary policy to achieve short-term political goals, setting up sharp reversals once those goals are achieved. The result is an inherently more volatile economy.
History’s replete with examples of that and to bring Trump back in, there’s every reason to believe he’d take it to extremes.
During his Monday chat with Kernen, Bessent derided Fed staff in what, for him, were caustic terms. “All these PhDs over there, I don’t know what they do,” he said. “This is like universal basic income for academic economists.”
Bessent — and I’m really not trying to be abrasive here — appeared even more nervous on camera than usual. There were a couple of moments where he could barely talk. He stammered, stuttered, gulped, cleared his throat and generally struggled to speak in an authoritative manner befitting of his position. He was, in a word, scared. And surely not of Kernen, nor of Andrew Ross Sorkin.
I won’t make any more of that. Bessent’s not great on camera even on his best days, and this wasn’t his best day. I only mention it because I think he’s walking on egg shells just like everyone else in the cabinet. If they’re terrified of Trump — and I think they probably are — he’d have it no other way.
The important takeaway from Bessent’s CNBC interview — and I alluded to this above — is that it represents the Treasury Secretary building on Warsh’s “regime change” comments, as aired during a succession of Fox cameos last week.
By “regime change” Warsh didn’t necessarily mean removing Powell early, although he indicated some sympathy to that idea too. Rather, he meant a wholesale rethink at the institutional level.
Now Bessent’s floating the idea publicly, so you can imagine what these conversations are like behind the scenes. That’s the story The Wall Street Journal should be after, not another version of countless “Adult In Room Talks Trump Out Of XYZ” scoops.
I, for one, want to know what Bessent has in mind when it comes to “examin[ing] the entire Federal Reserve institution.” Because my guess is that Trump has designs on doing at the Fed what he’s trying to do across the entire federal bureaucracy — namely, firing experts on the excuse they’re incompetent and superfluous and replacing them with loyalists.
“We had to struggle with the old enemies of peace – business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.”
? Franklin D. Roosevelt
Great point, too often overlooked by so many, that if trump’s sycophants are talking about change publicly, then the eventual change is often worse (or much worse) than the made-for tv preview.
Does Bessent feel like the Department of the Treasury has “succeeded” in its mission at all times?
Now Bessent wants to know why the Fed has “operating losses”
—— Today in a CNBC interview, I called for a review of the Federal Reserve. It is my belief that the central bank should conduct an exhaustive internal review of its non-monetary policy operations. Significant mission creep and institutional growth have taken the Fed into areas that potentially jeopardize the independence of its core monetary policy mission.
As I have said many times, the Fed’s conduct of monetary policy “is a jewel box” that should be walled off to preserve its independence. This independence is a cornerstone of continued U.S. economic growth and stability.
However, this autonomy is threatened by persistent mandate creep into areas beyond its core mission, provoking justifiable criticism that unnecessarily casts a cloud over the Fed’s valuable independence on monetary policy.
While I have no knowledge or opinion on the legal basis for the massive building renovations being undertaken on Constitution Avenue, a review of the decision to undertake such a project by an institution reporting operating losses of more than $100 billion per year should be conducted.
The Fed does regular reviews of its monetary policy framework. I would urge Fed leadership to similarly undertake, publish and implement a comprehensive institutional review across its entire mission to buttress its credibility. It will go a long way towards strengthening the Fed’s credibility with the American people on its core mission of guiding our nation’s monetary policy.
There is nothing that sickens me more than people complaining about something they know the reason for (without stating the reason). Bessant acting like this short term operating loss is something wrong when he damn well knows why it has happened is the lowest form of servility and douchebaggery.
This is a page out of the smash the USPS playbook for its operating “losses” that have little to do with its operations, but instead flow from prefunding pension obligations and maintaining far-flug rural outposts in mainly red states. But as everyone knows, the Post Office sucks, as does the IRS and so now The Fed. Maybe we should just stop referring to government agencies using the article “The” at the top. Makes about as much sense as putting Hassett in charge of anything.
I agree he wants to fire the people who know what they are doing and hire incompetent sycophants. A little while ago you spent at least 6 months talking about the incompetent Turkey president, if I recall correctly inflation went to 20%. That is where we are headed.
If you truly don’t know what they do at the Fed, then you’re not qualified to lead Treasury.