CNBC's Steve Liesman joins 'Halftime Report' to discuss Treasury Secretary Bessent's sweeping criticism of the Federal Reserve and call for an internal review.

Washington

US Treasury Secretary Scott Bessent has released a detailed critique of the Federal Reserve, calling for an internal review of its policies and suggesting that its bank regulatory functions be transferred to other agencies such as the FDIC and the Office of the Comptroller of the Currency. Bessent's article, published in The International Economy, highlights concerns over the Fed's handling of the Silicon Valley Bank failure, its impact on economic inequality, and what he describes as 'mission creep' and loss of credibility.

Bessent also warns that the Fed's models may have political biases and urges that quantitative easing be reserved for emergencies and coordinated with the government. The timing of the article coincides with the Treasury's search for a new Fed chair, raising questions about potential policy shifts. Commentators stress the importance of maintaining the Fed's independence to avoid negative economic consequences.

Bessent calls for internal Fed review

We want to turn to some breaking news, our Steve Leesman joining us now with that breaking news. Steve, over to you. Frank, thanks very much. Treasury Secretary Scott Besen has published a broad and sweeping criticism of the Federal Reserve in an issue which is now online, and we've read the whole thing, or most of the whole thing, in the magazine called The International Economy. In the article, he calls for an internal Fed review of its policy and all of the things it does, and even suggests that the regulatory function, the bank regulatory function, should perhaps be stripped from the Federal Reserve, says the FDIC and the Office of the Comptroller of the Currency are better situated to fulfill these bank regulatory functions. He several times notes the failure when it comes to Silicon Valley Bank. He says Fed policy has led to inequality, undermined its credibility. He talks about mission creep, gain of function policies, and all of these, he says, has threatened the Fed's independence. The Fed, he says, needs to scale back distortions it causes in the economy, which is not even a veiled reference to the idea of the Fed's balance sheet. He says the Fed must establish its credibility as an independent institution. He accuses the Fed of having political biases in its models, in other words, what its models tell them about the outlook for growth when it comes to government spending versus tax cuts. The Fed, he says, has become beholden to its self-interest at the cost of national interest. Monetary policy, he says, should not be made in the White House or on Capitol Hill. So he's still backing Fed independence, but he says it's the obligation of leaders to point out the Fed's shortfalls. He calls for QE to be used only in true emergencies and in coordination with the rest of the government. So this is a 3,000-word piece. I think I've read all but the sidebars. One of the sidebars is, I was going to find it here. It's called Capitalism for Everyone, Socialism for the Markets. So, Frank, I don't know. The bigger question is, is this a precursor to some big changes that might be suggested by the Treasury? Or is this just the Treasury Secretary giving his thoughts and feelings and no political consequences? But certainly, this could be a context for action in Congress, Frank, when it comes to the Federal Reserve. Yeah, very interesting timing as well. Steve Leisman. Steve, thank you very much. Jim, I want to come over to you. The timing of this is very interesting, as we know that the Treasury Secretary said, and this is a quote, he's going to interview an incredible, incredible group of potential Fed chairs this week, right around Labor Day, to come out with this scathing criticism of the Fed and its independence while he's interviewing a potential Fed chair or an incredible group of them. Interesting, at least. Yeah, I'm not happy to hear this news at all. You know, Treasury Secretary Besant has been the smartest, most sane, most sober person in the Cabinet. He was the one who effectively kicked out Peter Navarro when Liberation Day went the way that it did. But perhaps Treasury Secretary Besant knows that he's got to at least appear to be singing from the same page in the hymn book if he wants to stay in the Cabinet. I hope that's what this is. I think he knows, I think he knows that Fed independence needs to be upheld. I'm also hopeful, but this, this may sound terribly naive. I'm hopeful that the president understands it as well and that what he's trying to do is kind of jawbone interest rates down leading up into the midterm election so he can kind of goose the economy, solidify his, his, his, his majority in both houses of the legislature and then maybe back off of this campaign against the Fed. Make no mistake, removing Fed independence is a bad idea. It will lead to higher interest rates, higher inflation. So I can just only hope that this is temporary and that Mr. Besant knows it as well and is playing along.

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