Bessent Criticizes Fed for Lack of Accountability, Eroding Public Trust
Treasury Secretary Scott Bessent voiced strong criticism of the Federal Reserve during a recent House Financial Services Committee hearing. He emphasized the central bank’s lack of accountability, which he believes has led to eroding public trust amidst soaring inflation.
Bessent on Fed’s Accountability and Public Trust
Bessent’s remarks followed President Donald Trump’s intention to nominate Kevin M. Warsh as the next chair of the Federal Reserve. This announcement followed a year of dissatisfaction regarding the Fed’s interest rate strategies. The Secretary expressed his respect for the Fed’s independence but noted that current leadership has diminished its credibility due to rising prices and a costly renovation of its headquarters.
Investigation into Fed Chair’s Actions
The Trump administration has launched a rare criminal investigation into Jerome H. Powell, the current Fed chair, focusing on his management of the renovation project. Bessent highlighted that the Fed’s independence hinges on the trust of the American people. He stated, “The Federal Reserve lost the trust of the American people when it allowed the greatest inflation in 49 years to ravage the working people of this country.”
Concerns Over Fed Funding
- Bessent criticized the Fed’s funding mechanism, suggesting it operates on “magic money” rather than congressional appropriations.
- The central bank is primarily funded through fees from financial institutions and interest on U.S. government securities.
The Impact of Political Tensions
Trump’s frustrations with the Fed have led to threats against its independence, particularly due to the central bank’s hesitance to lower interest rates aggressively. Tensions have escalated with the ongoing investigation into Powell and attempts to fire Fed board governor Lisa D. Cook, which is currently pending before the Supreme Court.
Senate Confirmation of Warsh in Jeopardy
The confirmation of Warsh’s nomination remains uncertain in the Senate. Senator Thom Tillis, a Republican from North Carolina, has indicated he will delay the process until the legal inquiry concerning Powell is resolved. However, Senator Tim Scott, the Banking Committee chairman, expressed optimism about Warsh’s eventual confirmation while defending Powell against allegations of legal misconduct.
Misstatements and Accountability
During the hearing, Bessent faced questions about a previous comment in a letter to investors, where he stated, “tariffs are inflationary and would strengthen the dollar.” Acknowledging the error, Bessent later clarified his position, stating that he no longer supports the claim that tariffs cause inflation.
These developments reflect Bessent’s concerns over the Federal Reserve’s lack of accountability and the resulting impact on public trust during a period of significant economic challenges.
