US Treasury Secretary Bessent calls for big changes at Fed

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By Ann Saphir and David Lawder

(Reuters) -U.S. Treasury Secretary Scott Bessent on Friday called for renewed scrutiny of the Federal Reserve, including its power to set interest rates, as the Trump administration intensifies its efforts to exert control over a central bank whose insulation from short-term political pressures is widely seen as key to effective control of inflation. 

“There must also be an honest, independent, nonpartisan review of the entire institution, including monetary policy, regulation, communications, staffing and research,” Bessent wrote in the Wall Street Journal.

Bessent also called for the Fed to leave bank supervision to other governmental authorities and to “scale back the distortions it causes in the economy,” including by bond purchases made outside of true crisis conditions.

“The Fed must change course,” he said in a longer piece published in The International Economy that excoriated the Fed for policies he said helped feed inflation, enriched the rich at the expense of the poor, and exacerbated the housing affordability crisis.

Hours after Bessent called for the review, President Donald Trump told reporters that his Treasury chief was among four candidates on his personal shortlist to replace Fed Chair Jerome Powell, whose term expires in May 2026. But Bessent immediately said he was not interested.

Trump said he was also considering National Economic Council Director Kevin Hassett, former Fed Governor Kevin Warsh and current Fed Governor Christopher Waller.

Bessent himself began interviews on Friday of candidates to replace Powell, a source familiar with the process said. It was not immediately clear who would be interviewed.

Characterizing his barrage of criticism as a bid to restore the Fed’s independence, Bessent accused the central bank of partisanship and misusing public funds. He said too much had been spent on everything from a renovation of its headquarters to its police force to the staffing of its 12 regional reserve banks, amplifying charges made by Fed critics within and outside of the Trump administration.

A Fed spokesperson declined to comment on Bessent’s broadside. Fed officials over the years have pushed back against a number of similar accusations.  

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Trump has been unhappy with Powell since shortly after making him Fed chair in 2018, and all this year has ratcheted up pressure on the Fed to lower rates, as well as moving to install allies in the central bank who will push for cuts. Last week he said he was removing Fed Governor Lisa Cook over allegations of mortgage fraud, which Cook says are unfounded. Cook is suing to stop the firing and remains in her job for now. 

Trump’s nominee to fill an open seat at the Fed, Stephen Miran, said at his nomination hearing this week that he would take unpaid leave from his job as White House economic advisor while he does the Fed job, a situation that Democrats say impugns his ability to make monetary policy decisions independently of the president. 

Some of Bessent’s criticisms echo those of the Fed chair candidates. Warsh, for instance, has long called for “regime change” at the Fed and has argued the Fed’s balance sheet is far too large.

Waller was one of two Fed governors to dissent against the Fed’s decision in July not to cut interest rates.

The Fed does look set to kick off a series of reductions this month to shore up an increasingly fragile labor market, though no current policymakers have signaled support for the kind of deep rate cuts that Trump has demanded or the wholesale remaking of the Fed that Bessent is now advocating.

“The Fed must reestablish its credibility as an independent institution focused solely on its statutory mandate of maximum employment, stable prices, and moderate long-term interest rates,” Bessent said, referring to the three goals Congress sets for the Fed under law. 

(Reporting by Ann Saphir; Editing by Andrea Ricci and Rosalba O’Brien)