US Treasury Scrutinizes Fed Chair Candidates: Tough Questions on Monetary Policy

US Treasury Scrutinizes Fed Chair Candidates

According to sources familiar with the matter, the weeks-long interviews with 11 candidates concluded on Tuesday. Candidates reported that Bessent, along with other Treasury officials like Hunter McMaster and Francis Browne, conducted extensive interviews lasting up to two hours.

Some interviewed candidates revealed that Bessent inquired about their views on a recent article calling for a wholesale overhaul of the Fed, criticizing its quantitative easing (QE) program as a "gain-of-function monetary policy experiment." Additionally, candidates were asked to explain how they would manage the institution that Bessent has accused of "mission creep."

Concerns Over Fed Independence

The selection of the next leader of this crucial global financial institution comes at a time of turbulence for the Fed, following Trump's appointment of an ally to the Fed's board of governors and his attempt to oust another member. These actions have raised concerns about the President potentially undermining the Fed's independence.

Trump has previously urged the Fed to slash benchmark interest rates from the current 4% to 4.25% range to a low of 1%. The final decision is expected after the last round of interviews.

Notable Candidates and Balance Sheet Discussions

Trump has mentioned names including former Fed Governor Kevin Warsh, current Governor Christopher Waller, and his economic adviser Kevin Hassett as favored choices. Rick Rieder, BlackRock's chief investment officer of global fixed income, reportedly performed "very well," according to sources.

Bessent, who has remained tight-lipped about the selection process, has stated he hopes to find a candidate who is "open-minded" and "forward-looking." He has admitted that some candidates have performed better than expected, making it difficult for him to narrow down the list for the White House.

Powell is scheduled to step down as Fed chairman in May 2026, ending his eight-year tenure leading the world's most important central bank. He can, however, remain as a Fed governor until January 2028.

Trump's Criticisms of the Fed

During the latter stages of his term, Trump launched repeated attacks on Powell, calling him a "moron" and criticizing him for being "too slow" in adjusting monetary policy.

Bessent argues that the Fed's bloated balance sheet reflects an overreach of power, asserting that the Fed should reduce its intervention in the Treasury bond market and return more control to the Treasury Department.

Potential Impact on Monetary Policy

The Trump administration's focus on aggressively cutting interest rates, coupled with Bessent's criticisms of QE and its potential side effects, suggest a potential shift in monetary policy ahead. However, the administration's repeated intrusion into the Fed's independence has unnerved markets.

In conclusion, the selection process for the next Fed chair is under intense scrutiny, highlighting potential tensions between the government and the central bank. The questions being asked and the ongoing discussions surrounding monetary policy and Fed independence will shape the course of the US economy in the years to come.