U.S. Treasury Secretary Scott Bessent has publicly criticized the Federal Reserve, demanding the world's most influential central bank return to its statutory responsibilities and serve the American people rather than merely asset holders.
In a harshly-worded op-ed published Friday, Bessent described the Fed's post-financial crisis policies as a dangerous "gain-of-function" experiment. He argued that excessive use of unconventional policies, mission creep, and institutional bloat are threatening the central bank's independence.
Bessent explicitly stated that unconventional policies like quantitative easing (QE) must be limited to "true emergencies" and coordinated with other federal government departments. He emphasized that the Fed's independence stems from public trust, and the central bank must recommit to maintaining confidence among the American people.
To safeguard its future and America's economic stability, Bessent argued the Fed must reestablish its credibility as an independent institution focused on its statutory mission: maximum employment, stable prices, and moderate long-term interest rates.
Notably, this marks the first time Bessent has explicitly mentioned "moderate long-term interest rates" alongside maximum employment and stable prices as one of the Fed's three core statutory responsibilities that must be addressed to rebuild credibility. Traditionally, long-term rates are largely determined by market forces, making the Treasury Secretary's specific mention an unusual signal to markets.
This suggests that lowering long-term financing costs—particularly Treasury yields linked to mortgage rates—has become a priority in the Trump administration's policy agenda.
Analysts view this series of strong statements as a prelude to potential major shifts in U.S. monetary policy. According to analysis, these remarks, combined with previous statements about addressing a "national housing emergency," may be laying groundwork for restarting balance sheet expansion, QE, or even yield curve control (YCC) and other financial repression policies.
If this direction materializes, it would be substantially bearish for the dollar while benefiting gold, silver, copper, and other commodities, as well as Chinese A-shares and Hong Kong stocks.
**Bessent's Critique: Unconventional Tools Exacerbate Inequality**
In his article, Bessent sharply criticized the Fed's unconventional monetary policy tools implemented since the 2008 financial crisis, describing them as an uncontrolled "gain-of-function" experiment with unpredictable consequences that have severely impacted America's economic distribution.
The article noted these policies essentially created an implicit "backstop" for asset owners, leading to wealth concentration among those who already hold assets. In this cycle, large corporations flourished by locking in cheap debt, while small businesses dependent on floating-rate loans suffered when rates rose. Similarly, homeowning families benefited from asset appreciation protected by fixed-rate mortgages, while younger and less affluent families were priced out by high housing costs and hit hardest by inflation.
Quoting financial analyst Karen Petrou's work, Bessent stated: "Unprecedented inequality clearly demonstrates that wealth effects worked too well for the wealthy but served as an accelerator of economic hardship for everyone else." He argued the Fed failed to achieve its inflation mission while exacerbating class and generational divides, with its intended "wealth effect" stimulus proving counterproductive.
**Criticism of Overreach: Blurred Monetary-Fiscal Boundaries**
Bessent contended that the Fed's expanding policy footprint seriously threatens its institutional independence, with the core problem being its "overreach" that blurs the boundaries between monetary and fiscal policy.
The Fed's balance sheet policies directly influence capital flows to specific sectors—territory that should belong to markets and elected officials. Additionally, the central bank's role has become entangled with Treasury debt management, creating the impression that "monetary policy is being used to accommodate fiscal needs."
This dynamic creates "perverse incentives" for fiscal irresponsibility in Washington, as Congress and the President expect Fed intervention when their policies fail. Regulatory overreach compounds the problem, with the Dodd-Frank Act greatly expanding the Fed's regulatory territory, making it America's dominant financial regulator.
However, the 2023 Silicon Valley Bank collapse demonstrated the conflicts of interest inherent in combining regulatory and monetary policy functions, weakening accountability. Bessent suggested restoring professional specialization, with the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) taking the lead on bank supervision.
**Bessent's Requirements: Return to Three Core Mandates**
Facing these issues, Bessent outlined the Fed's path forward: it must reduce economic distortions, return to its narrow statutory mandate, and thereby rebuild public trust.
His core requirement is that the Fed must commit to the American people to restore 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."
He also called for an honest, independent, nonpartisan comprehensive review of the Fed's monetary policy, regulation, communication, staffing, and research. Most critically, he argued that unconventional policies like QE should only be used in "true emergencies" and in coordination with the federal government—a direct rejection of the past decade's policy path aimed at ending the central bank's role as the "only game in town."
**Market Interpretation: Paving Way for Financial Repression**
Such direct and public criticism of the Fed by a Treasury Secretary is extremely rare in U.S. history. Market analysts are attempting to decode the deeper political intentions and direct implications for investors.
According to analysis, Bessent's statements, combined with the precedent of White House officials joining the Fed as governors, signal that executive branch influence over monetary policy is significantly increasing. The new emphasis on "moderate long-term interest rates" is seen as key to understanding future policy direction.
This echoes the Trump administration's previous statements about lowering 30-year mortgage rates, which are closely tied to 10-year Treasury yields. Therefore, analysts believe this may be opening the door to new financial repression policies such as restarting QE or implementing yield curve control (YCC).
Such policies aim to artificially suppress interest rates, with the direct consequence being dollar weakness. In this context, analysts expect gold, silver, copper, and other assets, as well as Chinese A-shares and Hong Kong stocks, could be potential beneficiaries.
**Full Translation of Bessent's Op-Ed:**
**The Fed's 'Gain-of-Function' Monetary Policy** *This central bank risks its independence by straying from its narrow statutory mission*
By Scott Bessent, September 5, 2025
As we saw during the Covid pandemic, when laboratory-enhanced experiments escape containment, they can cause serious damage. Once released, they are hard to take back.
The "unconventional" monetary policy tools rolled out after the 2008 financial crisis have similarly transformed the Fed's policy framework in ways with unpredictable consequences. The Fed's new operating model is effectively a "gain-of-function" monetary policy experiment.
Overuse of unconventional policies, mission creep, and institutional bloat are threatening the central bank's independence. The Fed must change course. Its standard toolkit has become too complex to manage and theoretically uncertain. Simple, measurable tools aimed at limited statutory missions are the clearest path to better outcomes and long-term preservation of central bank independence.
One might think that the new tools created after 2008, and the centralization of financial markets, should give the Fed better insight into where the economy is headed. At minimum, these "enhanced functions" should enable the Fed to steer the economy more effectively. But that hasn't been the case.
In 2009, the Fed predicted U.S. real GDP would accelerate to 4% in 2011. Instead, growth slowed to 1.6%. Cumulatively, the Fed's two-year forecast overestimated actual GDP by more than $1 trillion.
Repeated forecasting failures demonstrate the Fed's overreliance on its own capabilities and expansionary fiscal policy to stimulate growth. When the Trump administration shifted to tax cuts and deregulation, the Fed's forecasts were too pessimistic, highlighting model flaws and neglecting supply-side effects.
During and after the financial crisis, the Fed's repeated interventions effectively provided a backstop for asset holders. This harmful cycle further concentrated national wealth among those who already owned assets.
In the corporate sector, large companies flourished by locking in cheap debt, while small companies dependent on floating-rate loans suffered during rate hikes. Homeowners saw property values soar, mostly insulated by fixed-rate mortgages. Meanwhile, young people and low-income families were both excluded from asset ownership and hit hardest by inflation, missing out on asset appreciation.
By failing to deliver on its inflation mission, the Fed widened class and generational gaps. Its approach of stimulating growth through "wealth effects" backfired.
Financial analyst Karen Petrou wrote in her 2021 book "Engine of Inequality": "Unprecedented inequality is clear evidence that wealth effects worked too well for the wealthy while accelerating economic hardship for everyone else."
The Fed's expanding footprint has profound implications for independence. By extending functions into areas traditionally belonging to fiscal authorities, the Fed has blurred the line between monetary and fiscal policy.
The central bank's balance sheet policies directly influence which sectors receive capital, intervening in areas that should be determined by markets and elected officials. Entanglement with Treasury debt management creates the impression that monetary policy is being used to accommodate fiscal needs.
This expansion of power has fostered a Washington culture of relying on Fed backstops after fiscal policy mistakes. Rather than taking responsibility, presidents and Congress expect Fed rescue when their policies fail. This "only game in town" dynamic creates perverse incentives for irresponsibility.
Regulatory overreach compounds the problem. The Dodd-Frank Act dramatically expanded the Fed's regulatory scope, making it America's dominant financial regulator. Fifteen years later, the results are disappointing.
The 2023 Silicon Valley Bank collapse clearly demonstrated the dangers of combining regulation with monetary policy. Today, the Fed supervises banks, lends to them, and determines their business models—inevitable conflicts that blur accountability and endanger independence.
A clearer framework should restore specialization: giving the FDIC and OCC the lead on bank supervision while letting the Fed focus on macroeconomic monitoring, lender-of-last-resort liquidity support, and monetary policy.
Independence depends on credibility and political legitimacy—both undermined by the Fed's mission creep. Excessive intervention has serious distributional consequences, weakening credibility and threatening independence.
Looking ahead, the Fed must reduce its economic distortions. Unconventional policies like quantitative easing must be used only in true emergencies and in coordination with other federal government departments. The entire institution needs honest, independent, nonpartisan review covering monetary policy, regulation, communication, personnel, and research.
America faces short- and medium-term economic challenges and long-term consequences: a central bank that has put its independence at risk. The Fed's independence comes from public trust. The central bank must recommit to maintaining the American people's confidence.
To safeguard its future and America's economic stability, the Fed 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 is U.S. Treasury Secretary. A longer version of this article will appear in the forthcoming issue of International Economy magazine.*