Bezent hits the Federal Reserve: must be "human", QE only for emergencies, first time mentioning moderate long-term interest rates

U.S. Treasury Secretary Benson openly "criticized" the Federal Reserve again, demanding that the most influential central bank in the world return to its statutory duties, serve the trust of the American people, and not just asset owners. On Friday, in a signed article published in the Wall Street Journal, Benson harshly described the post-financial crisis era policies of the Federal Reserve as a dangerous "function enhancement" experiment. He believes that the excessive use of unconventional policies, expansion of functions, and institutional bloating are threatening the independence of the central bank. He clearly pointed out that the use of unconventional policies such as QE must be limited to "truly emergency situations" and coordinated with other federal government departments. Benson stated that the independence of the Federal Reserve comes from public trust. The central bank must recommit to maintaining the confidence of the American people. In order to safeguard its own future and the stability of the U.S. economy, the Federal Reserve must reaffirm its reputation as an independent institution focused on its statutory mission of maximum employment, stable prices, and moderate long-term interest rates. Of particular note, this is the first time Benson has listed "moderate long-term interest rates" alongside maximum employment and stable prices as one of the three major statutory duties that the Federal Reserve must focus on to rebuild its reputation. Traditionally, long-term interest rates are more determined by market forces, and the mention by the Treasury Secretary is seen by the market as an extremely unusual signal. It implies that lowering long-term financing costs (especially tied to mortgage rates) has become a top priority in the policy agenda of the Trump administration. Analysts believe that this series of firm statements is seen as the prelude to a possible major shift in U.S. monetary policy. According to CICC's quick comment titled "Benson: The Federal Reserve must be people-oriented", this speech, combined with previous remarks on tackling the "national housing emergency situation", may be paving the way for restarting balance sheet expansion, QE, and even yield curve control (YCC) financial repression policies. Analysts believe that if this direction becomes reality, it will be a substantial negative factor for the U.S. dollar while benefiting major commodities such as gold, silver, copper, as well as A-shares and H-shares markets. Benson sharply criticizes policy mistakes: Unconventional tools exacerbate wealth inequality Benson sharply criticized in the article that a series of unconventional monetary policy tools taken by the Federal Reserve since the 2008 financial crisis, like a runaway "function enhancement" experiment, have unpredictable consequences and severe negative impacts on the distribution pattern of the U.S. economy. The article pointed out that these policies essentially created an implicit "safety net" for asset owners, leading to further concentration of wealth in the hands of those who already own assets. In the corporate sector, large companies flourish by locking in cheap debt, while small companies relying on floating rate loans are squeezed when interest rates rise. Similarly, homeowners see property values soar, mostly immune to the impact due to fixed-rate mortgages. Meanwhile, young and low-income families are excluded from asset ownership, and are hit hardest by inflation. Benson quoted financial analyst Karen Petrou's view in her 2021 book "The Engine of Inequality", stating that "unprecedented inequality clearly proves that the wealth effect is too effective for the rich, but an accelerator of economic hardship for others." He believes that the Federal Reserve's failure to achieve its inflation mandate has exacerbated intergenerational and class divides, with the "wealth effect" aimed at stimulating growth having the opposite effect. Criticism of overstepping boundaries: Blurring of monetary and fiscal boundaries, erosion of independence Benson believes that the Federal Reserve's expanding policy footprint has seriously threatened its institutional independence, with the core issue being its functions have "overstepped" and blurred the boundaries between monetary and fiscal policy. The article stated that the Federal Reserve's balance sheet policy directly affects which sectors can access capital, interfering in areas that are traditionally the domain of markets and elected officials. In addition, the entanglement of the central bank's role with the Treasury Department's debt management creates an impression that monetary policy is being used to meet fiscal needs. This dynamic fosters an irresponsible culture in Washington, where in the event of fiscal policy failures, Congress and the President expect the Federal Reserve to come to the rescue. This "sole player" dynamic creates inappropriate incentives, as financial irresponsibility and accountability are weakened. Over-regulation is also a problem. Benson points out that the Dodd-Frank Act vastly expanded the Fed's regulatory scope, making it the dominant regulator of the U.S. financial industry. However, the collapse of Silicon Valley Bank in 2023 clearly illustrates the danger of combining regulatory and monetary policy functions. The monitoring and monetary policy entanglement at the Fed blurs accountability and weakens independence. A clearer framework should restore specialization: empowering the FDIC and OCC to lead bank regulation, while allowing the Federal Reserve to focus on macro monitoring, last-resort liquidity support, and monetary policy. Benson's demands on the Federal Reserve: Return to the three major statutory duties, regain "people-orientedness" Faced with these issues, Benson has pointed the way forward for the Federal Reserve: it must reduce the distortions it creates in the economy and return to its narrow statutory mandate to rebuild public trust. The core requirement Benson puts forward is that the Federal Reserve needs to make a commitment to the American people and regain their confidence. To achieve this goal, the central bank must focus on its three statutory tasks: maximizing employment, stabilizing prices, and achieving "moderate long-term interest rates." Additionally, he calls for an honest, independent, non-partisan comprehensive review of the Fed's monetary policy, regulation, communication, personnel, and research. The most crucial policy recommendation is that unconventional policies like quantitative easing (QE) should only be used in "truly emergency situations" in the future and coordinated with other federal government departments. This is seen as a direct repudiation of the Federal Reserve's policy path of the past decade, aimed at ending the central bank's role as the "only player" in the market. Market interpretation: Paving the way for financial repression policies The direct and public criticism of the Federal Reserve by the Treasury Secretary is extremely rare in U.S. history. Market analysts are trying to interpret the deeper political intentions behind this and its direct impact on investors. According to CICC's macro commentary, Benson's statement, combined with the precedent of White House officials becoming directors at the Federal Reserve, signals a significant increase in the influence of the executive branch over monetary policy. The new term "moderate long-term interest rates" is seen as key to unlocking future policy directions. It echoes the Trump administration's previous statements on lowering 30-year mortgage rates and is closely related to the trend of the 10-year U.S. Treasury yield. Therefore, CICC believes that this may open the door for a new round of financial repression policies (such as restarting QE or implementing YCC). These policies aim to artificially lower interest rates, with the direct consequence being a weakening of the U.S. dollar. In this context, analysts expect that assets such as gold, silver, copper, as well as Chinese A-shares and H-shares markets, could be potential beneficiaries.