Bescent "knocks" on the Federal Reserve: It needs to have "people's nature," QE should be limited to emergency moments, and for the first time, it names moderate long-term interest rates

U.S. Treasury Secretary Bessen has once again publicly "tapped" the Federal Reserve, demanding that the world's most influential central bank return to its statutory duties and serve the trust of the American people, rather than just asset owners.

On Friday, in a signed article published in The Wall Street Journal, Bessen harshly described the Federal Reserve's post-financial crisis policies as a dangerous "functional enhancement" experiment. He believes that the excessive use of unconventional policies, functional expansion, and institutional bloating are threatening the independence of the central bank. He explicitly stated that the use of unconventional policies such as QE must be limited to "real emergencies" and coordinated with other departments of the federal government.

Bessen stated that the independence of the Federal Reserve comes from public trust. The central bank must recommit to maintaining the confidence of the American people. To ensure its future and the stability of the U.S. economy, the Federal Reserve must re-establish its credibility as an independent institution focused on its statutory mission: maximum employment, stable prices, and moderate long-term interest rates.

Notably, this is the first time Bessen has placed "moderate long-term interest rates" alongside maximum employment and stable prices as the three statutory responsibilities that the Federal Reserve must focus on to rebuild its credibility. Traditionally, long-term interest rates are more determined by market forces, and the Treasury Secretary's "naming" of this issue is seen by the market as an extremely unusual signal. It suggests that lowering long-term financing costs (especially the yields on government bonds linked to mortgage rates) has become a priority in the Trump administration's policy agenda.

Analysts believe that this series of tough statements is seen as a prelude to a significant shift in U.S. monetary policy.

According to a quick commentary by China International Capital Corporation titled "Bessen: The Federal Reserve Must Be People-Oriented," this speech, combined with previous remarks about addressing the "national housing emergency," may be paving the way for the resumption of balance sheet expansion, QE, and even yield curve control (YCC) as financial repression policies. Analysts believe that if this direction becomes a reality, it will pose substantial downside risks to the U.S. dollar while benefiting commodities such as gold, silver, copper, and the A-share and Hong Kong stock markets.

Bessen Criticizes Policy Mistakes: Unconventional Tools Worsen Wealth Inequality

In the article, Bessen sharply criticized the series of unconventional monetary policy tools adopted by the Federal Reserve since the 2008 financial crisis, likening them to an out-of-control "functional enhancement" experiment, the consequences of which are unpredictable and have had a severely negative impact on the distribution pattern of the U.S. economy.

The article pointed out that these policies essentially created an implicit "safety net" for asset owners, leading to a high concentration of wealth among those who already own assets. In this cycle, large corporations thrived by locking in cheap debt, while small businesses relying on floating-rate loans were squeezed when interest rates rose. Similarly, families with property benefited from asset appreciation due to the protection of fixed-rate mortgages, while younger and less affluent families were pushed out by high housing prices and suffered the most severe impacts of inflation.

Bessen cited financial analyst Karen Petrou's views in her writings, stating, "Unprecedented inequality clearly demonstrates that the wealth effect is too effective for the rich, but an accelerator of economic distress for others." He believes that the Federal Reserve has failed to achieve its inflation mission and has instead exacerbated disparities between classes and generations, with its intended "wealth effect" to stimulate growth backfiring

Criticism of Overstepping: Blurred Boundaries Between Monetary and Fiscal Policies, Compromised Independence

Bessent believes that the Federal Reserve's continuously expanding policy footprint has severely threatened its institutional independence, with the core issue being that its functions have "overstepped," blurring the boundaries between monetary policy and fiscal policy.

The article states that the Federal Reserve directly influences capital flows to specific industries through its balance sheet policies, which should be the domain of the market and elected officials. Furthermore, the central bank's role is entangled with the Treasury's debt management, easily creating the impression that "monetary policy is being used to accommodate fiscal demands." This dynamic creates "improper incentives" for fiscal irresponsibility in Washington, as Congress and the President always expect the Federal Reserve to intervene when their policies fail.

The excessive expansion of regulatory aspects is also problematic. Bessent points out that the Dodd-Frank Act has greatly expanded the Federal Reserve's regulatory scope, making it the dominant regulator of the U.S. financial industry. However, the collapse of Silicon Valley Bank in 2023 illustrates that consolidating regulatory and monetary policy functions creates conflicts of interest and undermines accountability. He suggests restoring professional division of labor, with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) leading bank regulation.

Bessent's Demands to the Federal Reserve: Return to Three Statutory Responsibilities and Reclaim "People's Nature"

In light of the above issues, Bessent has pointed out the direction for the future of the Federal Reserve: it must reduce the distortions it causes to the economy, return to its narrow statutory authorization, and rebuild public trust.

The core demand put forward by Bessent is that the Federal Reserve needs to commit to the American people to regain public confidence. To achieve this goal, the central bank must focus on its three statutory tasks: maximizing employment, stabilizing prices, and achieving "moderate long-term interest rates." Additionally, he calls for an honest, independent, and nonpartisan comprehensive review of the Federal Reserve's monetary policy, regulation, communication, staffing, and research.

The most critical policy recommendation is that unconventional policies like quantitative easing (QE) should only be used in "real emergencies" in coordination with the federal government in the future. This is seen as a direct negation of its policy path over the past decade, aiming to end the central bank's role as the "only player in the room."

Market Interpretation: Possibly Paving the Way for Financial Suppression Policies

The direct and public criticism of the Federal Reserve by the Treasury Secretary is extremely rare in U.S. history. Market analysts are trying to interpret the deeper political intentions behind this and its direct impact on investors.

According to a macro commentary released by CICC, Bessent's statement, combined with the precedent of White House officials joining the Federal Reserve as governors, marks a significant increase in the executive branch's influence over monetary policy. Among these, the new term "moderate long-term interest rates" is considered key to unlocking the future direction of policy. It resonates with the Trump administration's previous statements about lowering 30-year mortgage rates, which are closely related to the yields on 10-year U.S. Treasury bonds.

Therefore, CICC believes this may open the door to a new round of financial suppression policies (such as restarting QE or implementing YCC). Such policies aim to artificially lower interest rates, with the direct consequence being a weaker dollar. Against this backdrop, analysts expect assets like gold, silver, copper, and the Chinese A-share and Hong Kong stock markets to potentially benefit The following is the full translation of the article by Scott Bessenet:

The Federal Reserve's "Functional Gain" Monetary Policy

This central bank puts its independence at risk by deviating from its narrow statutory mission

Author: Scott Bessenet September 5, 2025

As we saw during the COVID-19 pandemic, once laboratory-created experiments escape their confines, they can cause severe damage. Once released, it is difficult to rein them back in. The "unconventional" monetary policy tools introduced after the 2008 financial crisis have similarly transformed the Federal Reserve's policy framework, with unpredictable consequences.

The Federal Reserve's new operating model is essentially an experiment in "functional gain" monetary policy. The overuse of unconventional policies, functional expansion, and institutional bloat are threatening the central bank's independence. The Federal Reserve must change direction. Its standard toolbox has become too complex, difficult to manage, and its theoretical foundation is uncertain. Simple, measurable tools aimed at a limited statutory mission are the clearest path to achieving better outcomes and maintaining the central bank's independence in the long term.

Some may argue that the new tools created after 2008, along with the centralization of financial markets, should allow the Federal Reserve to better gauge economic trends. At the very least, these "enhanced functions" should enable the Federal Reserve to guide the economy more effectively. But this is not the case. In 2009, the Federal Reserve predicted that U.S. real GDP would accelerate to 4% in 2011. Instead, growth slowed to 1.6%. Cumulatively, the Federal Reserve's two-year forecasts overestimated real GDP by more than $1 trillion. Repeated forecasting failures indicate that the Federal Reserve is overly reliant on its own capabilities and expansionary fiscal policies to stimulate growth. When the Trump administration shifted to tax cuts and deregulation, the Federal Reserve's forecasts were overly pessimistic, highlighting flaws in its models and neglecting supply-side effects.

During and after the financial crisis, the Federal Reserve repeatedly intervened, effectively providing a backstop for asset holders. This harmful cycle has further concentrated national wealth in the hands of those who already own assets. In the corporate sector, large companies thrived by locking in cheap debt, while small companies reliant on floating-rate loans were squeezed during interest rate hikes. Homeowners saw property values soar and were largely insulated from shocks due to fixed-rate mortgages. Meanwhile, young people and low-income families were excluded from asset ownership and were the first to suffer from inflation, missing out on asset appreciation.

By failing to fulfill its inflation mandate, the Federal Reserve has exacerbated class and generational disparities. Its approach to stimulating growth through the "wealth effect" has backfired. Financial analyst Karen Petrou wrote in her 2021 book "Engines of Inequality": "Unprecedented inequality is the ironclad evidence that the wealth effect is too effective for the rich while exacerbating the economic plight of others."

The Federal Reserve's continually expanding "territory" has profound implications for its independence. By extending its functions into areas traditionally belonging to fiscal authorities, the Federal Reserve has blurred the lines between monetary policy and fiscal policy. The central bank's balance sheet policies directly affect which sectors can access capital, intervening in areas that should be determined by the market and elected officials The entanglement with the Treasury's debt management has created the impression that monetary policy is being used to meet fiscal needs. The expansion of power has fostered a culture in Washington where the Federal Reserve is relied upon to bail out after fiscal decision-making failures. The President and Congress do not take responsibility, but instead expect the Federal Reserve to step in when their policies fail. This "only game in town" dynamic creates irresponsible perverse incentives.

Overregulation has exacerbated the problem. The Dodd-Frank Act significantly expanded the Federal Reserve's regulatory scope, turning it into the dominant regulator of U.S. finance. Fifteen years later, the results are disappointing. The collapse of Silicon Valley Bank in 2023 clearly illustrates the dangers of combining regulation with monetary policy. Today, the Federal Reserve both regulates banks and lends to them, while also determining their profit models; this inevitable conflict blurs accountability and jeopardizes independence. A clearer framework should restore specialization: empowering the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) to lead bank regulation, while allowing the Federal Reserve to focus on macro monitoring, last-resort lender liquidity support, and monetary policy.

The core of independence lies in credibility and political legitimacy. Both have been harmed by the Federal Reserve's overreach. Excessive intervention has led to serious distributional consequences, undermined credibility, and threatened independence. Looking ahead, the Federal Reserve must reduce the distortions it causes to the economy. Unconventional policies like quantitative easing must only be used in true emergencies and in coordination with other federal government departments. At the same time, a candid, independent, and nonpartisan review of the entire institution must be conducted, including monetary policy, regulation, communication, personnel, and research.

The United States faces short-term and medium-term economic challenges, as well as long-term consequences: a central bank that has put its independence at risk. The Federal Reserve's independence derives from public trust. The central bank must recommit to maintaining the confidence of the American people. To secure its future and the stability of the U.S. economy, the Federal Reserve must reestablish its credibility as an independent institution focused on its statutory mission: maximum employment, stable prices, and moderate long-term interest rates.

The author, Bessent, is the current U.S. Secretary of the Treasury. A longer version of this article will be published in the upcoming issue of International Economics