The Ideological Clash Over the Fed's Future

Whenever the US Treasury Secretary wants to signal the market, he usually chooses commercial TV shows or media platforms with friendly views. Therefore, his recent appearance on Fox News, calling for the Federal Reserve to cut interest rates at its upcoming meeting, was not surprising. But even more unexpected is the Secretary's foray into an unusual "professional" area: a niche publication, 'International Economy,' published a lengthy article he wrote this spring, detailing his criticisms of the Federal Reserve. The 'Wall Street Journal' also published a summary of the article. The significance of this move comes at a critical time. Ahead of the upcoming Fed meeting, President Trump not only demanded interest rate cuts but also called for the removal of Lisa Cook, a member of the Federal Reserve Board, on charges of 'fraud.' More importantly, Federal Reserve Chairman Jerome Powell is doing his best to maintain the central bank's independence, although the court has already halted Cook's removal.

Criticism of the Fed's Mandate and Quantitative Easing

But what is most important in the Secretary's article is that it does not focus directly on interest rates. Instead, he accuses the Federal Reserve of "mission confusion" – claiming that it has politicized itself by injecting politics into financial regulation and quantitative easing (QE) operations. The Secretary is particularly critical of QE, considering that "its theoretical basis is questionable and will lead to negative economic consequences" because it distorts markets and increases income inequality by raising the prices of wealthy people's assets.

A Call for a More Focused Mission

Therefore, he calls for the Federal Reserve to adopt a "narrower mission," stop buying assets, in order to "achieve better economic results and maintain the independence of the central bank." He further emphasizes that this independence is "vital to the success of the US economy." The Secretary's views are not unique. Kevin Warsh, the frontrunner to be the next Federal Reserve Chairman, conveyed a similar message in a scathing speech he gave in late April; Stephen Miran, a White House advisor who will soon join the Federal Reserve Board, also expressed a similar position in a joint article; Kevin Hassett, another White House advisor and a potential candidate for Federal Reserve Chairman, also expressed his opposition to QE in an open letter several years ago.

Broader Concerns Beyond Interest Rates

It is clear from this that there is a camp within the Trump administration that "wants to narrow the Federal Reserve's mission." In other words, the voices we constantly hear that "call for interest rate cuts" are just the tip of the iceberg.

Potential Impacts and Issues for Investors

As the "war of words" around monetary policy escalates, investors need to think about at least four questions: * Can Benst, Hasset, Warsh, and Miran maintain their "belief in the independence of the Federal Reserve" in the face of Trump's random attacks? * Can Benst really stop or reduce asset purchases, given that the Federal Reserve has been a major buyer of US Treasury bonds (and will still need more buyers in the future)? * How will Benst's positions on "asset purchases" combine with interest rate policy? * What is the impact on other central banks? While these questions are unlikely to be discussed at the upcoming Federal Reserve meeting, it is about a deeper discussion about the Fed's role and its future. As US debt continues to rise, these discussions will become more intense. Get ready: The real battle over the Federal Reserve has just begun.