Not all Fed critiques are created equal

Some thoughts on Bessent as Fed Chair, critiques of the Jay Powell, an independent Inspector General, crypto banking, and the Tour de France

Some links to get your week started.

1. “Bessent on becoming Fed chair: ‘I will do what the president wants,’” The Hill, Jun 30, 2025

Yes, Secretary Bessent. That’s precisely what we’re afraid of.

The idea that a sitting Treasury Secretary would receive the nod for Fed Chair isn’t that strange to me. From 1913 to 1935, by statute the Fed Chair was the Treasury Secretary. Or at least, the Chair of the Federal Reserve Board was the Treasury Secretary. Leadership in that instantiation of the Fed was a tangled mess.

Since then, several Fed Chairs have had experience at Treasury and the Fed, in both directions, including Marriner Eccles, William McChesney Martin, Bill Miller, Paul Volcker, Janet Yellen, and Jay Powell. And both Arthur Burns and Ben Bernanke went from positions of close proximity to the President who nominated them to the Fed immediately into the big chair. All to say, the idea of Scott Bessent leaving the Treasury to become Fed Chair is not the worst idea I have heard.

Among those bad ideas, however, is the idea of Bessent serving in both roles concurrently. The entire idea of Fed independence rests on the intuition that Fed policy will be determined according to some logic other than “what is in the best interests of my president.” The Treasury Secretary is the economic spokesperson for that president. It’s an impossible, irresolvable conflict of interest.

“I will do what the President wants” is a good way to describe why this combination would be so unfortunate.

2. “The Federal Reserve Should Welcome the Appointment of an Independent Inspector General,” Andrew Levin, Mercatus Center, June 19, 2025

I like very much the ultimate policy proposal from Levin in this brief. The Federal Reserve’s many important functions are almost impossible to disentangle. This means that very important, very meaningful forms of political oversight get lost in the need to defend the Fed from partisan meddling.

The basic idea is this. There are so many times that the Fed will make hard calls. Some of these will be good decisions. Some will be bad. Some will be bad in ways that we want the Fed to make — that is, we want central bankers to take appropriate risks that will not always play out. And sometimes central bankers make bad decisions because they have usurped roles and responsibilities that are not theirs to exercise.

The community of inspectors general is a flawed, imperfect, but important ecosystem to help divide the sheep from the goats from the kinds of decisions described above. But when the inspector general works for the Fed Chair and becomes part of that very ecosystem, we can’t be confident in their conclusions. On this ultimate conclusion, I think Levin is exactly right, and would support legislation that has floated around for several years to make the Fed’s inspector general a separate presidential appointment.

Unfortunately, Levin takes his critique of conflicted Fed self-oversight to an extreme that drowns his point in partisan rancor. The evidence that Levin provides for the need for an inspector general is cost overrun that has occurred for the Fed’s new headquarters. It’s a great topic to explore. Calling it “Versailles on the National Mall,” as Levin does, is very silly, though. Jay Powell is not Louis XIV, whose absolute monarchy of the ancien regime answered to no one. I was sad to see such a lack of rigor in that characterization—it makes the ultimate conclusion (which, again, I endorse) harder to defend.

3. “Fed Chair Should Be Investigated by Congress, FHFA Head Says,” Bloomberg, July 2, 2025.

Harder to defend because this kind of Washington riff-raff grabs hold of that sort of loose rhetoric and does asinine things like this.

My confession: I had never heard of William Pulte, President Trump’s newly appointed head of the Federal Housing Finance Authority. Some quick internet research on him does not reassure me that we have the highest caliber people in charge of these levers of power in the Trump Administration. This campaign by a regulator that has virtually nothing to do with the Fed to delegitimize Jay Powell is a clown show. These are not serious people making serious arguments.

The problem is not that the Fed should never be questioned about its budgets. Those questions are well within the realm of appropriate oversight. The problem is that these questions, from these sources, with these kinds of florid metaphors, are coming in a context of rank partisan hostility toward the Fed for precisely one reason: interest rates are not low enough to satisfy the sitting US president. To the extent that Fed independence counts for anything, it counts for this.

Here’s how to know the best kind of Fed critiques (and critics). Do the criticisms arise only when partisan interests align? Are they pitched by people with official roles that have nothing to do with these questions? Are they motivated by currying favor with President Trump by picking up his antipathy for Powell and the Fed and amplifying it?

If so, we can dismiss them and the people who make them as worse than pointless in their critiques: they are making our flawed and imperfect institutions worse for their own political gain.

4. Ripple applies for national banking license, PYMTS.com, July 3, 2025

It starts.

I expect with the passage of the GENIUS Act there will be a rush as crypto firms seek to become banks and banks seek to issue stablecoin.

I also do not share the view that this rush to combine digital assets and banking will be a panacea for society (or even the financial system), nor do I think it will pose a grave threat.

The key difference here is bank supervision. It is true that bank supervisors, following the 2024 election, will pull back from managing front-line risk in ways that they might have been doing during the Biden Administration, but it is also true that bank supervision will not be abolished. This means that many behind-the-scenes conversations about risk management and fragility and systemic risk will be a part of the day-to-day job of banks and the federal government no matter who is president.

5. Tour de France stage three: Tim Merlier victorious on crash-marred day as green jersey Philipsen abandons, New York Times, July 7, 2025

The greatest and most pleasant surprise of 2025 has been that I have fallen hopelessly in love with cycling in all its subdisciplines, from TT bikes, to racing road bikes, to endurance road bikes, to gravel bikes, to mountain bikes. I have been training triathlon primarily, but I rarely miss a day of biking of some kind, including on vacation (and cannot bring myself to travel by car without throwing a bike on a rack). I am brand new to it all, and can’t overstate my status as a tyro – some would say poser I guess – but the reality is that I have found a deep groove of vivid living that teaches me about myself every day. This leads me to encounter each ride with a feeling of awe and gratitude. I feel an almost spiritual bond to cycling that, despite many years of attempting it, has arrived as an epiphany.

So it is that I am tracking the Tour de France with equal fervor. Such a heartbreaking stage today, crashes galore, with the final stage victory decided by millimeters. What I did not appreciate until now, given how hard I work with how much power to reach what levels of speed I can muster, is the sheer artistry and massive talent on display. Combine it all with professional athletes’ insatiable desire to win and some apparently dubious decisions in the race plan, and we have a lot of season-ending wrecks for some of the most talented riders.

As I say, I’m new to Tour watching. I can’t bear many more stages like this, though. I hope we get all the win-by-millimeters drama with far less of the tragedy.