Many economists agree with Treasury Secretary Scott Bessent that the Federal Reserve could benefit from some changes. But they don’t trust the Trump administration to carry those changes out.
Bessent wrote a lengthy article outlining the need for structural and policy changes at the Fed. What’s unclear to economists is whether Bessent’s critiques were about reform or merely a pretext to disturb the central bank’s independence further.
“The criticisms need to be taken very seriously,” said Robert Hetzel, who was an economist at the Federal Reserve Bank of Richmond for more than 40 years until 2018. “But were they offered seriously? Or were they offered in the spirit of just one more way of attacking the Fed and weakening it as an institution and its credibility, so that it will be more accessible to the kind of takeover attempts that the administration is currently undertaking.”
Bessent’s piece was published this month in The International Economy magazine and excerpted in The Wall Street Journal. It argues that the central bank’s overreach has undermined its own independence and lays some groundwork for an overhaul of the central bank beyond the leadership changes the administration has attempted.
“At the heart of independence lies credibility and political legitimacy. Both have been jeopardized by the Fed’s expansion beyond its mandate,” Bessent wrote. “There must also be an honest, independent, nonpartisan review of the entire institution, including monetary policy, regulation, communications, staffing and research.”
NOTUS spoke with multiple former Fed economists and experts who said that while they agree with many of the points Bessent made, they’re skeptical that this administration will properly reform the Fed.
“I don’t disagree with Secretary Bessent on almost anything written in the article,” Jai Kedia, a research fellow at the Cato Institute. “But it is concerning because it’s this administration that is also doing the things that are making it hard to do the reforms from the article in the first place.”
Since his return to office in January, President Donald Trump has mounted a full-scale attack on the Federal Reserve, which, among other things, sets interest rates. At one point, the Trump administration considered ousting Federal Reserve Chair Jerome Powell. Trump is attempting to remove sitting Fed governor Lisa Cook and appointed Stephen Miran, a White House economist, to an open seat on the Federal Open Market Committee.
Critics have warned that all of this erodes the Federal Reserve’s independence, which has major implications for the U.S.’s standing in the global economy.
The White House told NOTUS that Trump exercised his lawful authority in attempting to remove Cook. “The removal of a governor for cause improves the Federal Reserve Board’s accountability and credibility for both the markets and American people,” White House spokesperson Kush Desai said.
The Treasury Department did not respond to a request for comment.
Bessent’s criticisms of the central bank were more policy-focused. He pointed in his op-ed to the Federal Reserve’s use of large-scale asset purchase, an emergency tool used to spur the economy when the Fed can’t lower interest rates because rates are already near zero. Bessent wrote that the Fed began asset purchase programs to stimulate growth, instead of just to manage crises, which he argues exacerbates wealth inequality.
All of the economists NOTUS spoke with agreed that there are issues with the Fed’s use of asset purchase, particularly in response to the economic downturn during the COVID-19 pandemic.
“That went well beyond the traditional central bank practice of increasing the liquidity desired by the public and the financial market,” Hetzel said. “So in that event, given that the Fed didn’t raise the funds rate to offset the stimulus, it was like Argentina or Venezuela or Zimbabwe where it was just straight-up monetization of the government debt, and that led to inflation.”
Bessent was also critical of the Federal Reserve’s inability to accurately forecast economic outcomes, saying that the Fed has overestimated the efficacy of spending-based fiscal policy and underestimated the efficacy of tax cuts and deregulation. He also complained of regulatory overreach, advocating for moving some of the Fed’s banking regulation responsibilities to the Treasury.
Calls for reforms to the Federal Reserve aren’t new; some economists have long been proponents of, at the very least, instituting some sort of review process. For example, the Bank of England invites outsiders to review policy and decisions. But this only works if the review is completely nonpartisan, experts said.
“If some reform would be implemented, I think it would be for the good, but I would argue that also the Treasury needs to change, and fiscal policy would need to be reformed,” said Riccardo Trezzi, a professor at the University of Geneva and a former Federal Reserve Bank economist. “And I don’t think that this administration actually will do it, because we’re seeing the exact opposite, if anything.”
Many economists were also critical of the Trump administration’s policies, which are projected to add to the deficit, and Bessent’s failure to mention the other institutions in Washington, like Congress, that bear responsibility for economic outcomes.
“The Fed is not alone in town, and some of the things that the Fed needs to do are conditional on the other policies, specifically fiscal policy and everything that Congress does,” Trezzi said.
Economists’ biggest issue with Bessent’s argument was his assertion that the Fed has undermined its own independence all while the Trump administration has taken steps to undermine the central bank’s independence.
“I think the Fed could have been a bit smarter about undertaking some of this stuff so that we didn’t get to this point,” said Ellen Meade, a longtime Federal Reserve economist. “Because even people who love the Fed and who’ve had great experience with it and think highly of the institution, like me, still think there’s some really key issues they need to grapple with and do something about.”