Bessent says Fed relies on ‘flawed models’ and ‘must change course’

In an opinion piece for the Wall Street Journal, Secretary of the Treasury Scott Bessent wrote: “Repeated misses demonstrate that the Fed placed too much faith in its own abilities and in expansionary fiscal policy to spur growth. When the Trump administration shifted toward tax cuts and deregulation, the Fed’s forecasts were too pessimistic, underscoring its reliance on flawed models and neglect of supply-side effects….The Fed’s new operating model is effectively a gain-of-function monetary policy experiment. Overuse of nonstandard policies, mission creep and institutional bloat threaten the central bank’s independence. The Fed must change course. Its standard tool kit has become too complex to manage, with uncertain theoretical underpinnings. Simple and measurable tools, aimed at a narrow mandate, are the clearest way to deliver better outcomes and safeguard central-bank independence over time.”