Federal Reserve Under Fire: Why Its Radical Operational Overhaul Can’t Wait

The Fed's kitchen is on fire—and everyone's suddenly a Michelin-starred critic.

Behind the velvet ropes: Jerome Powell & Co. face unprecedented pressure as their monetary policy playbook gets dragged into the 21st century kicking and screaming. The 110-year-old institution's 'move fast and break nothing' approach isn't cutting it in our real-time economy.

The ticking clock: With inflation whipsawing between 2% and 'oh god make it stop' territory since 2021, the central bank's operational framework looks about as agile as a steam engine. Their balance sheet? Still bloated with $7 trillion in assets despite 'quantitative tightening' theater.

The crypto elephant: Meanwhile, Bitcoin's 200-day moving average just notched its steepest ascent since 2020—because nothing screams 'monetary policy failure' quite like a decentralized asset hitting ATHs during a Fed credibility crisis.

The overhaul can't come soon enough. But after decades of kicking the can, does the Eccles Building even know where the road starts?

Criticism of the Fed

The Federal Reserve has been subjected to intense scrutiny following U.S. President Donald Trump’s criticism of Powell for not reducing interest rates. TRUMP has reportedly considered removing Powell, which has intensified discussions surrounding the institution’s independence and decision-making processes.

In an interview with Bloomberg, Scott Bessent emphasized that the Fed should focus solely on monetary policy. He argued that the broadening of its operations could threaten its independence. Former U.S. Treasury Secretary Larry Summers shares Bessent’s view on this matter. crypto Traders Are Rushing to This App – Here’s Why You Should Too

Bessent: “Shifting away from monetary policy can damage the institution’s independence. Its budget has quadrupled since 2004, necessitating its own review.”

Internal Audit and Expert Participation Debates

Bessent suggested that a review of the Fed’s operations could be supported under Powell’s leadership. He proposed that this audit could involve an independent body or external experts. Referencing the Bank of England’s self-review following a rate increase in 2022, Bessent stated that a similar process could benefit the U.S.

Bessent: “Audit can be conducted by a committee or a group of experts. Following a rate increase, the Bank of England underwent a detailed review involving external experts. An initial internal audit might be suitable for the U.S. Federal Reserve; external audits could follow if necessary.”

Experts believe that a comprehensive internal audit evaluating the Fed’s policies and governance could prevent a loss of confidence and boost transparency.

Revisions under Powell’s leadership might address public concerns regarding the Fed’s decision-making and policies. Bessent’s “internal audit” call receives backing within this framework.

Previous similar reviews didn’t just reveal flaws and deficiencies but also strengthened communication with external stakeholders. This approach emphasizes the Fed’s potential for increased transparency.

The growth in the Federal Reserve’s financial and managerial size is closely monitored by officials and independent experts alike. Calls for audit and transparency are gaining widespread support under current conditions.

The significant expansion of the Federal Reserve’s budget and management since its inception has sparked new discussions on independence and accountability. A comprehensive audit involving internal and external experts is seen as a crucial step in enhancing transparency and trust. Such an audit could serve as a tool for evaluating policy-makers’ and management performance and ensuring public accountability. It’s vital for readers to remember that regular, independent audits of large institutions like the Federal Reserve are crucial for the economy’s and financial system’s health.