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Bessent: The Trump administration should look into the Fed''s ''many mistakes'' | CNN Business

Bessent Blasts Fed's 'Mistakes' on Interest Rates, Signals Trump-Era Overhaul

In a pointed critique that underscores the growing tensions between former President Donald Trump's economic allies and the Federal Reserve, hedge fund manager Scott Bessent has lambasted the central bank's handling of interest rates, labeling recent decisions as critical errors that have hampered economic growth. Bessent, a key economic advisor to Trump and a potential candidate for Treasury Secretary in a second Trump administration, made these remarks during an exclusive interview with CNN's economic team, highlighting what he sees as systemic flaws in the Fed's approach to monetary policy. His comments come at a time when inflation remains a hot-button issue, and as markets brace for potential shifts in U.S. economic leadership following the 2024 election cycle.

Bessent's primary grievance centers on the Federal Reserve's aggressive rate-hiking campaign initiated in 2022, which he argues was both too rapid and overly prolonged. According to Bessent, the Fed under Chair Jerome Powell failed to adequately anticipate the lagged effects of these hikes, leading to an unnecessary slowdown in economic activity. "The Fed's mistakes have cost American families dearly," Bessent stated, pointing to data showing that higher borrowing costs have stifled consumer spending, business investment, and housing markets. He referenced specific instances, such as the Fed's decision to raise the federal funds rate to a range of 5.25% to 5.5% by mid-2023, a level not seen since the early 2000s. This, Bessent claims, exacerbated inflationary pressures initially but then swung too far in the opposite direction, risking a recession that could have been avoided with more nuanced policy adjustments.

Delving deeper into his analysis, Bessent drew parallels to historical Fed missteps, invoking the ghosts of past economic downturns. He compared the current situation to the Volcker era of the 1980s, when aggressive rate hikes successfully tamed inflation but at the cost of a deep recession. However, Bessent argued that today's Fed lacks the precision of its predecessors, criticizing what he called a "one-size-fits-all" approach that ignores regional economic disparities. For instance, he highlighted how rate hikes have disproportionately affected sectors like real estate and small businesses in the Midwest and South, while tech-heavy economies on the coasts have shown more resilience. "The Fed is playing checkers while the economy demands chess," Bessent quipped, emphasizing the need for a more data-driven, forward-looking strategy that incorporates real-time indicators beyond traditional metrics like CPI and unemployment rates.

Bessent's comments are not merely retrospective; they signal a broader agenda for Fed reform under a potential Trump return to the White House. As a veteran of Soros Fund Management and founder of Key Square Group, Bessent brings a Wall Street perspective that aligns with Trump's populist economic rhetoric. He advocated for greater presidential influence over the Fed, a stance that echoes Trump's own criticisms during his first term, when he publicly pressured Powell to lower rates. Bessent proposed structural changes, including term limits for Fed governors and enhanced congressional oversight, to prevent what he described as "bureaucratic inertia." He also suggested integrating more private-sector expertise into the Fed's decision-making process, perhaps through advisory boards composed of industry leaders rather than solely academics and career central bankers.

The interview also touched on the global implications of U.S. monetary policy. Bessent warned that the Fed's errors have ripple effects worldwide, contributing to currency volatility in emerging markets and straining trade relationships. He cited the strengthening U.S. dollar as a byproduct of high rates, which has made American exports less competitive and fueled trade imbalances with partners like China and the European Union. In Bessent's view, a Trump administration would prioritize "America First" policies that recalibrate these dynamics, potentially through tariffs or bilateral negotiations, while pressuring the Fed to align its actions with national interests. "We can't have a Fed that's out of sync with the White House on economic priorities," he asserted, hinting at a more interventionist approach that could test the boundaries of the central bank's independence.

Critics of Bessent's position, including some economists interviewed by CNN, argue that his proposals risk politicizing the Fed, which could undermine its credibility and lead to inflationary spirals if short-term political gains override long-term stability. Paul Krugman, a Nobel laureate and New York Times columnist, responded to similar sentiments in a recent op-ed, warning that eroding Fed independence has historically led to poor outcomes in countries like Turkey and Argentina. Yet Bessent dismissed such concerns, framing them as elitist defenses of a status quo that has failed ordinary Americans. He pointed to polling data showing widespread dissatisfaction with the economy, with inflation cited as a top concern among voters, particularly in swing states.

Looking ahead, Bessent outlined a vision for interest rate policy under Trump that emphasizes gradual cuts to stimulate growth without reigniting inflation. He predicted that by early 2026, rates could be lowered to around 3-4% if the Fed acts decisively, fostering a "soft landing" that boosts employment and wages. This contrasts with current Fed projections, which suggest a more cautious path with potential pauses in rate reductions amid lingering inflationary risks. Bessent also touched on fiscal policy synergies, advocating for tax cuts and deregulation to complement monetary easing, drawing from the 2017 Tax Cuts and Jobs Act's playbook.

The broader context of Bessent's remarks reveals a deepening divide in economic thought. On one side are proponents of Fed autonomy, who credit Powell's team with navigating the post-pandemic recovery despite unprecedented challenges like supply chain disruptions and geopolitical tensions from the Ukraine war. On the other are Trump allies like Bessent, who see the Fed as an obstacle to aggressive pro-growth policies. This tension was evident in recent congressional hearings, where Republican lawmakers grilled Fed officials on their rate decisions, echoing Bessent's critiques.

Bessent's interview also shed light on his personal trajectory. A self-made financier who rose from modest beginnings, he credits his market acumen to lessons learned during the 2008 financial crisis, where he profited from betting against subprime mortgages. His alignment with Trump began during the 2016 campaign, and he has since become a fixture in conservative economic circles, advising on everything from trade to energy policy. In the CNN discussion, he reiterated his commitment to "draining the swamp" in Washington, including what he sees as entrenched interests at the Fed.

As the 2024 election approaches its conclusion—assuming the article's 2025 dateline implies a post-election reflection—Bessent's views could shape policy debates. Markets have already reacted to similar signals, with bond yields fluctuating on speculation of a Trump victory. Investors are pricing in potential volatility, weighing the benefits of lower rates against the risks of increased deficits from proposed tax cuts.

In summary, Bessent's critique is more than a policy wonk's lament; it's a manifesto for change that could redefine the Fed's role in American life. Whether his ideas gain traction depends on political outcomes, but they underscore a fundamental question: Should the central bank remain insulated from politics, or is greater accountability the key to economic vitality? As Bessent put it, "The Fed's mistakes aren't just numbers on a chart—they're lost jobs, higher bills, and shattered dreams for millions." His words resonate in an era of economic uncertainty, where the line between monetary policy and political strategy grows ever thinner.

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[ https://www.cnn.com/2025/07/21/economy/bessent-trump-fed-mistakes-interest-rates ]