US Treasury chief Bessent calls for simplified Fed as he ends candidate interviews
The final second-round interview with the five candidates to succeed chair Jerome Powell will be today
[WASHINGTON] Treasury Secretary Scott Bessent said that a key theme of his interviews for the next chair of the Federal Reserve has been simplifying the US central bank, which he indicated has become too complex in how it manages money markets.
“One of the things in terms of the criteria that I’ve been looking for” has been the interplay of the Fed’s various instruments, Bessent said on CNBC on Tuesday (Nov 25). “I realise the Fed has become this very complicated operation.”
Bessent said his final second-round interview with the five candidates to succeed chair Jerome Powell will be today, and reiterated that President Donald Trump may make his announcement on the nomination before Dec 25.
The administration has previously said the finalists are Fed governors Christopher Waller and Michelle Bowman, former governor Kevin Warsh, National Economic Council Director Kevin Hassett and BlackRock executive Rick Rieder.
The Fed now maintains a so-called ample reserves approach in controlling its policy interest rate, which involves holding a sizeable amount of Treasuries on its balance sheet.
As part of the current operating system, it pays interest on the reserves that banks park with it, and for any cash that money market funds temporarily place at the Fed.
“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,” Bessent said.
Policymakers last month decided to halt the contraction of the Fed’s balance sheet as of Dec one in an effort to ensure that liquidity remains “ample.” It had been shrinking its portfolio since June 2022 after its holdings of Treasuries and mortgage securities had soared during the Covid crisis.
“There are all these facilities and operations, the standing repo facilities, and I think we’ve got to simplify things,” Bessent said. He did not specify how he thought the central bank ought to overhaul its current operations.
The Standing Repo Facility allows eligible institutions to borrow cash in exchange for Treasury and agency debt. It has seen regular use in recent weeks, reaching US$50.4 billion on Oct 31 – the most since the tool was made permanent in 2021.
“There’s this very complicated calculus between the monetary policy, the balance sheet and regulatory policy,” Bessent said. “And we’ve really emphasised in the interviews, what’s the interplay for that calculus?”
The Treasury chief also said, “I think it’s time for the Fed just to move back into the background,” without detailing what that would entail. And he suggested central bankers may be speaking too often.
“We just need to calm down all these speeches by these bank presidents that are just redundant,” Bessent said. BLOOMBERG
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