Bessent says Fed has become “very complicated,” presses chair finalists on overhaul plans

Treasury Secretary Scott Bessent said on CNBC on Tuesday that the Federal Reserve has turned into a “very complicated operation,” according to the interview aired on the network.

Scott said he is pressing every finalist for the Fed chair role on how they would deal with the growing complexity inside the central bank, and he said this has become a major theme in all his talks.

He explained that he wants to understand how each candidate sees the links between the tools the Fed uses, the markets it influences, and the system it tries to manage. He said these interviews are in their final stage today, and he added that President Donald Trump may reveal his pick before December 25.

The administration has already named the five finalists: Fed Governors Christopher Waller and Michelle Bowman, former Fed Governor Kevin Warsh, National Economic Council Director Kevin Hassett, and BlackRock executive Rick Rieder.

Scott said he is asking all five of them how they would handle the Fed’s structure, its tools, and the way it communicates. He said these questions matter because he believes the central bank has drifted into systems that are too heavy and unclear.

Scott challenges ample reserves regime and growing liquidity concerns

The Fed has been using what it calls an ample reserves setup to control interest rates. Under that model, the central bank holds a large stack of Treasuries and pays interest to banks and money market funds that leave cash with it. Scott said he is worried that this system might not be working the way the Fed thinks it is.

He said, “The Fed has taken us into a new regime, what is called ample reserves regime, and it looks like that might be fraying a bit here in terms of whether the reserves are actually ample in the system.”

Last month, policymakers decided to stop shrinking the Fed’s balance sheet starting December 1, because they wanted to keep liquidity “ample.” The balance sheet has been shrinking since June 2022, after it ballooned during the Covid crisis when the Fed bought huge amounts of Treasuries and mortgage securities.

Scott said the central bank is juggling too many moving parts. He pointed at the Standing Repo Facility, saying, “There are all these facilities and operations, the standing repo facilities, and I think we’ve got to simplify things.”

The Standing Repo Facility has been heavily used in recent weeks. On October 31, it reached $50.4 billion, the highest since it became a permanent part of the Fed’s tools in 2021. Scott said this shows why he keeps pushing the candidates on how they see the relationship between monetary policy, the balance sheet, and regulatory policy.

He said, “There’s this very complicated calculus between the monetary policy, the balance sheet and regulatory policy. And we’ve really emphasized in the interviews, what’s the interplay for that calculus?”

Scott targets Fed speeches, regional presidents, and looming leadership decisions

Scott also said he wants the Fed to lower its public profile. He said, “I think it’s time for the Fed just to move back into the background,” and he argued that many of the speeches from reserve bank presidents are not useful. “We just need to calm down all these speeches by these bank presidents that are just redundant,” he said.

He then pointed at a problem he sees inside the regional bank system. He said, “These regional presidents were supposed to be people from the district. And we’ve got at least three, maybe four, of the reserve banks where people were hired from outside the district. They don’t even live in their district. They commute back to New York.”

The Federal Open Market Committee includes seven governors and five Reserve Bank presidents.

The presidents are not nominated by the White House or confirmed by the Senate, and they go through a re-authorization process every five years. That review comes up in February, and Raphael Bostic, the Atlanta Fed president, has already said he plans to step down.

Scott also said the governors appear ready to cut rates. When asked about Trump’s joke earlier this month that he would fire him if he didn’t push for lower rates, Scott responded, “If you were in the room, he was joking.”

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