BIS publicly announces the selection criteria for the "next Federal Reserve Chair": reduce functions, "look forward" rather than rely on "historical data"

Bessent has set the tone for the selection of the next Federal Reserve Chair.

On August 7th, U.S. Treasury Secretary Bessent stated in a media interview that the new Federal Reserve Chair should be someone who can "examine the entire organization." He believes that the Federal Reserve's mission has included too many matters beyond monetary policy, which has put its independence at risk.

Bessent also stated that the new Chair must "earn market confidence and possess the ability to analyze complex economic data," and more importantly, must "focus on forward-thinking rather than relying on historical data."

This statement is the clearest public articulation from Bessent regarding the qualifications for the successor to the Federal Reserve Chair.

In response to President Trump's ongoing public calls for the Federal Reserve to cut interest rates, Bessent reiterated in the interview, "Ultimately, the Federal Reserve is independent."

Core Task: Reassess and Possibly Shrink the Functions of the Federal Reserve

A clear signal conveyed by Bessent is that one of the primary tasks of the next Federal Reserve Chair may be to reassess the agency's complex functions.

This statement echoes the Trump administration's concerns about the scope of the Federal Reserve's functions.

In recent years, the Federal Reserve's role has expanded in areas such as financial stability, climate risk, and bank regulation, raising debates about whether it has deviated from its core monetary policy responsibilities.

Bessent's remarks suggest that the new Chair may need to redefine the boundaries of the Federal Reserve's functions, refocusing on traditional monetary policy formulation and the maintenance of financial system stability.

Decision-Making Paradigm: "Looking Forward" Rather than "Looking Backward"

In addition to institutional reform, Bessent pointed out an important shift in the Federal Reserve's decision-making methodology for the future. He emphasized that the new Chair needs to possess the ability to "adapt very well to forward-thinking," rather than simply "relying on historical data."

Currently, the Federal Reserve heavily relies on lagging indicators such as historical inflation data and employment metrics in its interest rate decisions. Bessent's remarks imply that future policy-making may be more based on predictions of economic prospects rather than retrospective analysis of past data.

This means that the future path of the Federal Reserve's policy interest rates may no longer strictly follow past patterns but will more reflect judgments about future economic risks and opportunities.

Redefining Strong Dollar Policy

While outlining his expectations for the Federal Reserve, Bessent also reiterated his views on the dollar and international monetary policy.

He defined "strong dollar policy" as a policy that can "continue to maintain the dollar's status as a reserve currency," rather than being fixated on short-term prices in the exchange rate market. Bessent stated, "If we have good economic policies, then the dollar will naturally strengthen."

When discussing Japan, Bessent expressed approval of the current policy path of the Bank of Japan. He believes that as long as Bank of Japan Governor Kazuo Ueda and his board "focus on inflation outcomes rather than exchange rate outcomes," then the yen exchange rate issue will "resolve itself."

This aligns with the stance of the U.S. Treasury's June report, which indicated that the Bank of Japan should continue to tighten monetary policy, which would help "normalize the weak yen situation."