In the 1970s, the US Congress gave the Federal Reserve a dual mandate: to ensure price stability and promote maximum employment through interest rates. When a prevailing trend is clear, the Fed's course of action is simple: if inflation visibly rises, it must raise rates and increase the cost of money; if the economy is limping and the labour market is faltering, it must open the credit taps and reduce rates.
That is the theory, but in practice there is political struggle, the interpretation of data, short- and long-term forecasts, and divergent interests among bourgeois fractions. Economic data is often contradictory, and this is what is happening in America today, with an added complication: an open struggle between the executive and the central bank for control of monetary policy.
Between inflation and employment
Fed Chairman Jerome Powell summed up the situation: The unemployment rate is low but has edged up. Job gains have slowed, and the downside risks to employment have risen. At the same time, inflation has risen recently and remains somewhat elevated
. Consumer goods inflation rose to 2.9% in August. Jobs grew by only 29,000 per month in the summer quarter. For Powell, in the labour market, there has been a marked slowing in both the supply of and demand for workers
, which tips the balance of risks
towards employment. A contribution came from the Bureau of Labor Statistics – now under Trumpian leadership – which revised downwards the increase in employment between March 2024 and March 2025, halving it and thereby removing 900,000 jobs from the previous tally, to the dismay of the Biden administration. The Fed then reduced its rate by a quarter of a point to 4%.
The Economist disputes the emphasis on employment data, which lowers the central bank's guard against rising inflation, instead arguing that demographic slowdown and the expulsion of immigrant workers are sufficient to explain the weakness of the US labour market. Powell also believes that the slowdown in the labour market is linked to migration, but as it also leads to slower growth, it has the effect of reducing the inflationary pressure caused by tariffs. Meanwhile, the game being played around monetary power has seen some twists and turns.
Blitz and compromise
After months of brutally pushing for drastic rate cuts, Donald Trump attempted to gain a majority on the Federal Reserve Board. He could count on two of the seven members, Christopher Waller and Michelle Bowman, appointed during his first term. He replaced the resigning Adriana Kugler with his chief economic adviser Stephen Miran, who retains his political office. He also tried to free up a fourth seat by dismissing Lisa Cook, accused of mortgage fraud. There was a race to get Miran's nomination approved by the Senate before the central bank's September meeting, and a race to obtain a temporary injunction on the removal of Lisa Cook in federal court. The vote for a quarter-point cut won with a majority of eleven votes in the FOMC (the nineteen-member body that decides on interest rates, twelve of whom are voting members). Miran remained isolated in calling for a half-point cut and two further equal cuts before the end of 2025. The coup seems to have been thwarted, but with a majority in the FOMC emerging, two more quarter-point cuts are expected within the year.
It is a potential turning point. The Fed's realignment also seems to have begun in view of Powell's term expiring in May 2026. In its editorial, The Wall Street Journal does not hide its disappointment and fears a surrender: the Fed is cutting rates even though it knows that inflation will not fall below 2% until 2028: Undeterred, the Fed is shifting into dovish mode, and with surprising consensus
. However, the isolation of the White House representative means that this is not a surrender, but a search for compromise, pending the arrival of the next Fed chair.
Bessent's offensive
Last month we examined Miran's 2024 plan to bring the monetary power under the control of the White House and to decentralise it in favour of the twelve regional Fed banks. Further indications come from a long article by Treasury Secretary Scott Bessent in the Washington quarterly magazine The International Economy, the main points of which we summarise here. It is striking that the secretary, in his long indictment of the Fed, does not touch on the issue of interest rates, showing that the populist campaign for cheap money is only one of the White House's objectives. The criticism of the Fed is merciless and targets the overreach of its powers beyond the dual mandate
entrusted to it by Congress. Bessent makes an interesting argument when he asserts that the new powers assumed by the Fed have compromised its efficiency, and that taking them away is the way to safeguard central bank independence
. A bourgeois jurist would respond to the secretary that the functions accumulated by the Fed have been delegated to it or permitted by Congress, while the MAGA faction would like to make them available to the White House.
Bessent points to the 2010 banking law, the Dodd-Frank Act, as the beginning of this process. That law, passed after the global financial crisis, significantly expanded the Federal Reserve's regulatory and supervisory powers. All bank holding companies with more than $50 billion in assets (later increased to $100 billion) were placed under the supervision of the Fed: These changes transformed the central bank from lender of last resort to the dominant micro-prudential regulator of US finance
.
The Fed's monetary policy, Bessent argues, had contributed to creating the housing bubble
before the financial crisis, and its delay in recognising the warning signs exacerbated the financial collapse. Despite its culpability, the Fed emerged from the financial crisis with more powers than it had going in
. Fifteen years later, in 2023, the failures of three banks – Silicon Valley Bank, Signature Bank, and First Republic – revealed the ineffectiveness of the central bank's supervision, as all three were firms subject to Fed exams and bespoke stress tests
.
Regulation and quantitative easing
Bessent wants to take regulatory powers away from the Fed and give them to the Federal Deposit Insurance Corporation (FDIC), the institution that manages bank deposit insurance and acts as a bankruptcy executor in bank defaults, and to the Office of the Comptroller of the Currency (OCC), the regulator of national banks, savings banks, and foreign banks. Bessent says that the goal is to rebuild the firewall between supervision and monetary policy
. It should be noted that the OCC is an independent agency operating within the Treasury Department and has political control over the FDIC. The Treasury would most likely be the main beneficiary of this firewall
in the new division of regulatory powers Bessent demands.
Bessent's bête noire is quantitative easing (QE), i.e., the policy of keeping interest rates artificially close to zero or negative through purchases of State bonds and other bonds and securities. The Fed has used it for long periods, from the time of the crisis until the early months of 2022. Firstly, in addition to fuelling inflationary forces, QE flattened the cost of capital across industries and sectors, effectively drowning out the market's ability to send early warning when the real economy shows signs of weakening or of rising inflation
, i.e., its ability to be a barometer for potential risks
. Secondly, QE is inherently fiscal and political in nature [...] for this reason there should be a whole-of-government approach to establishing its use
. Thirdly, the redistributive effects and wealth effect
of QE have been significant and have disproportionately benefited
asset holders: And within the class of asset owners, the Fed effectively chose winners and losers by expanding asset purchase programs beyond Treasuries to private obligations, with the housing sector receiving particularly favourable treatment
.
The secretary insinuates that the Fed had an interest in maintaining low rates and ample liquidity in order to mask its failures in banking supervision: in other words, it would have put its role as monetary power at the service of its role as regulator. In July, Bessent announced the opening of an investigation into the entire institution of Federal Reserve
. The Fed, FDIC, and OCC have convened a public meeting for the end of October to review their regulations. This may mark the opening of a second battlefront for American monetary power.
The Treasury Secretary's fervour against the distortions of QE raises a question. As the manager of the colossal US public debt, the Treasury must be an advocate of minimum rates, as is the occupant of the White House, and cannot give up on the idea that the central bank will step in, at particular moments, as a buyer of federal debt. Bessent's criticism is partly due to the mountain of public debt, which grew rapidly during the QE and secular stagnation
period, doubling the debt-to-GDP ratio: 62% in 2007, 125% in 2020. Bessent is opposed to QE only if it is promoted by the central bank; he wants the executive to be in control.
Quantitative easing
and debt
It is not only the statist and dirigiste ideology which also wants to have the last word on this matter. It is the enormity of public debt that calls into question the original concept of central bank independence, understood as the clear separation of the bank that issues currency from the Treasury that issues State debt. QE has broken that taboo, eroding the dividing line between monetary policy and fiscal policy, but keeping the central bank as the master of the game, the only game in town
. This is the point under discussion: the Fed must stick to its strict mandate
but must be available to the executive when peace or war debt requires it.
The search for additional sources of public debt financing is one of the reasons given to explain the new frontiers of finance and the issuance of stablecoins, digital currencies backed by real currencies (especially the dollar) and government securities. Commenting on the US law on stablecoins, Bessent estimated that by 2028 their circulation in the US will have increased from the current $250 billion to $2 trillion, generating demand equal to that for Treasury securities. As happened twenty years ago with derivatives, big financial groups are creating a financial trading circuit that produces an artificial bubble of fictitious capital, whose specific purpose is to act as a crutch for federal debt, this time with the support of new technologies and under the self-interested aegis of the Treasury and the White House.