Bessent Admonishes Powell, Fueling Fed Independence Concerns
Treasury Secretary's rare public rebuke of the Fed Chair's planned Supreme Court appearance adds to market uncertainty over monetary policy and political pressure.
A rare and public fissure has opened between the U.S. Treasury and the Federal Reserve, sparking fresh concerns among investors over the central bank's independence from political pressure. Treasury Secretary Scott Bessent on Tuesday openly criticized Federal Reserve Chair Jerome Powell, calling his plan to attend Supreme Court oral arguments a “mistake” that risks politicizing the institution.
The public admonishment from a sitting Treasury Secretary, a departure from the typical decorum governing relations between the two powerful economic bodies, has introduced a new layer of uncertainty into financial markets. While the immediate market reaction was relatively contained, the conflict underscores a period of heightened tension for the central bank, which is already navigating a separate, politically charged criminal investigation into its chair.
The controversy centers on Powell’s expected attendance at the Supreme Court for a landmark case involving President Donald Trump’s effort to remove Fed Governor Lisa Cook. Bessent, in comments first reported by The Wall Street Journal, argued that Powell’s presence at the hearing would be an unnecessary political gesture. “[It would be] a mistake,” Bessent stated, emphasizing the need for the central bank to maintain its apolitical stance.
This dispute touches upon the bedrock principle of central bank independence, a cornerstone of stable monetary policy that allows the Fed to make unpopular decisions, such as raising interest rates to fight inflation, without political reprisal. Any erosion of this independence could have significant long-term consequences. Experts warn that if markets begin to believe monetary policy is driven by political aims rather than economic data, it could lead to what is known as 'fiscal dominance.' This could result in higher inflation and increased borrowing costs for the U.S. government as investors demand a greater premium for holding U.S. debt.
Analysts and former officials have voiced their concerns over the growing pressure on the institution. Former Fed Chair and Treasury Secretary Janet Yellen recently described a separate Justice Department probe into Powell as “extremely chilling” for central bank independence. Bessent himself has reportedly conveyed concerns to President Trump that the investigation is an unnecessary distraction.
While equity markets haven't shown signs of panic, other asset classes reflect a general mood of unease. Gold prices have climbed amid the geopolitical uncertainty, and bond markets are weighing the potential for increased volatility. The public friction between Bessent and Powell adds another variable for investors to parse as they assess the future path of interest rates and the Fed's credibility.
For now, the financial world is watching to see if Powell will heed the Treasury Secretary's warning and skip the court appearance, and how the administration will navigate this delicate balance. The episode serves as a stark reminder that the Federal Reserve's ability to operate 'above the political fray,' a pillar of U.S. economic stability for decades, is facing one of its most significant tests.