Executive Summary:
A recent article by Treasury Secretary Scott Bessent takes aim at the Fed for its use of unconventional monetary tools and its mission creep. Today, Dr Ed addresses the Treasury secretary in an open letter, detailing where they agree and diverge on the Fed’s role and what monetary and fiscal policies are needed to sustain the Roaring 2020s scenario that both support. While an original aim of the Fed was to promote financial system stability, Bessent’s push for lower interest rates risks a stock market meltup and upward pressure on inflation and bond yields. … Also potentially destabilizing: The administration’s highly unconventional Genius Act, which would use stablecoins backed by US Treasury bills to increase demand for Treasuries and fund the federal debt. … Check out the accompanying chart collection.
Dear Scott I: I Wholeheartedly Agree
Thank you for your public service as Secretary of the Treasury of the United States. I read your recent excellent article in The International Economy titled “The Fed’s New ‘Gain-of-Function’ Monetary Policy.” I agree with much of your criticism of the Fed. In addition, I believe that we share the same optimistic “Roaring 2020s” outlook for the US economy, and we both hope that the Fed doesn’t screw it up.
In an internal memo to your colleagues at Keysquare Capital Management dated January 31, 2024, you wrote: “Our base case is that a re-elected Donald Trump will want to create an economic lollapalooza and engineer what he will likely call ‘the greatest four years in American history.’ Economist Ed Yardeni believes that post-Covid America has the potential to have
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