When "Mistimed" Means $100 Billion

Treasury Secretary Scott Bessent isn't holding back on the Federal Reserve. Speaking to CNBC from Davos on Tuesday, he called out the central bank for racking up $100 billion in annual losses from what he termed "mistimed asset purchases"—a diplomatic way of saying the Fed bought a lot of bonds during the pandemic, then watched their value crater as interest rates shot up.

"I think that was a big mistake," Bessent said, though that wasn't the end of his critique. He also flagged what he called ethical oversights at the Fed over recent years, arguing that the institution's independence shouldn't mean it operates without accountability.

The "Magic Money" Problem

Here's Bessent's issue: The Federal Reserve is "unelected," "not subject to appropriations," and can essentially create money at will. He described this as having access to "magic money," which sounds fun until you realize there's limited oversight on how it gets used. The Fed wields enormous influence over Americans' daily lives—your mortgage rate, your job prospects, your savings account—yet operates with what Bessent sees as insufficient scrutiny.

Take the Fed's headquarters renovation project, which has ballooned in cost. Bessent's take? The institution will simply "print more money" to cover the overruns. Not exactly the budgeting discipline you'd expect elsewhere in government.

He also pointed to a pattern of resignations that's hard to ignore. "Under Chair Powell's watch," Bessent noted, "between four to six governors and presidents" have stepped down over ethical issues. He called the situation "not transparent," which is putting it mildly.

Independence Versus Oversight

On Monday, Bessent clarified that President Donald Trump remains "committed" to the Fed's independence, but added a crucial caveat: "independence does not mean no oversight." It's a fine line the administration is trying to walk, especially as the Department of Justice threatens the Fed with a "criminal indictment" over that $2.5 billion headquarters project.

Fed Chair Jerome Powell recently testified before the Senate Banking Committee, though the central bank hasn't yet commented publicly on Bessent's specific criticisms.