Treasury Secretary Scott Bessent has fired a remarkable new salvo in the continuing battle between the Trump administration and the Fed. Bessent, a highly accomplished global macro investor in the private sector before joining the Trump cabinet, has published an article (PDF) in The International Economy deploys a provocative metaphor, comparing the Fed's post-2008 toolkit to dangerous "gain-of-function" research to make a sophisticated critique of how the central bank has fundamentally transformed itself over the past fifteen years.

Bessent's central argument is that the Fed's adoption of unconventional tools like quantitative easing represents an unprecedented expansion of central bank power with deeply problematic consequences. He documents how QE's theoretical foundations remain murky even today—recall Ben Bernanke's telling admission that "QE works in practice, but it doesn't work in theory." The Wu-Xia Shadow Fed Funds Rate model suggested the Fed pushed effective rates to negative 3 percent by 2014, yet the promised economic boom never materialized.

Instead, what emerged was what Bessent calls "socialism for investors, capitalism for everyone else." The Fed's asset purchases disproportionately benefited the wealthy by inflating financial asset prices while delivering minimal gains in real economic output. Karen Petrou's research, which Bessent cites approvingly, shows this wasn't an unintended consequence but rather the predictable result of pursuing a "wealth effect" strategy in a society where asset ownership is highly concentrated.

The distributional consequences are stark: homeowners locked in low mortgage rates while younger Americans were priced out entirely; large corporations termed out their debt at historic lows while smaller firms dependent on floating-rate loans got crushed when rates rose; the bottom 50% of Americans, who own few financial assets, saw their purchasing power eroded by inflation while missing the asset price boom entirely.

Beyond monetary policy, Bessent documents the Fed's troubling institutional expansion. The central bank's budget has exploded, with the Board of Governors' spending rising from $167 million in 1995 to nearly $1 billion today. The Fed even maintains its own police force—a detail that aptly symbolizes the institution's imperial pretensions. Meanwhile, its balance sheet has ballooned from $900 billion pre-crisis to $7 trillion today, effectively monetizing trillions in federal debt without Congressional authorization.

Particularly damning is Bessent's documentation of the Fed's regulatory failures. Despite gaining vast new supervisory powers under Dodd-Frank, the Fed missed Silicon Valley Bank's elementary duration risk and failed to prevent Wells Fargo's consumer abuses. This creates what Bessent correctly identifies as an inherent conflict: the Fed now regulates, lends to, and determines the profitability of the very banks it oversees.

Bessent's critique arrives at a crucial moment in the ongoing tension between the Trump administration and the Federal Reserve. President Trump, Vice President Vance, and advisers and cabinet members on down have opened fire on Powell, which he exposed himself to by making comments seeming to suggest that he was refusing to cut rates because he disagrees with the administration's trade policy.

While Bessent doesn't lay out a detailed reform blueprint, his direction is clear: dramatically narrow the Fed's mandate and toolkit. Return bank supervision to the FDIC and OCC. Eliminate the Fed's forays into credit allocation. Require explicit Congressional authorization for any quantitative easing. Conduct a comprehensive, independent review of the institution's activities and structure.

These reforms face significant obstacles. The financial industry has grown addicted to the "Fed put" and will resist any withdrawal of support. Academic economists, who dominate Fed leadership, have intellectual and professional stakes in defending unconventional policy tools. And many in Congress prefer having the Fed as a convenient scapegoat for economic problems.

Yet the political moment may be uniquely favorable. The Fed's credibility is at a nadir after the inflation debacle. Its partisan tilt—Reserve Bank directors' political donations now skew 35% Democratic versus just 5% Republican—has further dented its image for independence. And the manifest failures of its expanded regulatory role provide ammunition for fundamental restructuring.

The impact of successful reform would be profound: healthier financial markets less dependent on central bank intervention, reduced inequality as asset bubbles become less frequent, and restored democratic accountability over crucial economic decisions. Most importantly, a reformed Fed focused solely on monetary stability would be far more likely to maintain the independence necessary for that core mission.

Bessent has started an essential conversation about the Federal Reserve's future. His "gain-of-function" metaphor may be provocative, but it captures something essential: the Fed's experiments with unprecedented powers have escaped the laboratory and are wreaking havoc in the real economy. It's time to put the genie back in the bottle.