The Fed Needs 'Serious Overhaul' Says Joe Lavorgna

Joe Lavorgna, counselor to Treasury Secretary Scott Bessent, said President Trump wants to bring accountability to the Federal Reserve and that's not encroaching on the central bank's independence

Treasury Secretary Scott Bessent repeated his call for Federal Reserve Chair Jerome Powell to conduct an internal review of the central bank, and referred to mortgage-fraud allegations about Fed board member Lisa Cook as the type of thing that should be included.

“I’ve encouraged Chair Powell to do this on an internal basis before there is an external review,” Bessent said in an interview with Fox Business on Wednesday. “This is the kind of thing that needs to be addressed,” he said, referring to the Cook matter.

President Donald Trump moved on Monday to oust Cook from her position as governor after the administration alleged she had engaged in mortgage fraud. Cook’s lawyer plans to file a lawsuit over the maneuver.

“We haven’t heard her say ‘I didn’t do it,’ — she just keeps saying, the president can’t remove her,” Bessent said. He said his view is that “if a Fed official committed mortgage fraud,” they should not be serving at one of the main US financial regulators. “The Fed is an unaccountable institution, and its relationship with the American people depends on a high level of trust, and incidents like this puncture that trust.”

Asked whether the move to fire Cook was part of a plan for Trump to gain a majority of his nominees on the Fed board, Bessent said that “all the Fed governors are independent.”

Fed Voting

The current board includes Christopher Waller and Michelle Bowman, nominated in Trump’s first term. The president has nominated the White House chief economist, Stephen Miran, for an open position on the seven-person board.

The administration doesn’t tell Waller and Bowman how to vote, Bessent said. The two governors dissented from the Fed’s policy decision last month, favoring an interest-rate cut while other voters opted to stand pat.

Bessent also said the process of picking a successor to Powell, whose term as chair ends in May, continues. He added that he would be interviewing candidates after the Labor Day holiday, and he and other administration officials will then forward three to four names on to Trump. The president’s pick will “surely” be known in the fall, he said.

Since the financial crisis in 2008, the Fed “strayed from its core mission of monetary policy,” the Treasury chief also said. The central bank “needs to get back to its core mission,” he said.

Fannie, Freddie

The Treasury chief also said the administration is moving ahead “deliberately” with regard to a proposal for selling shares in Fannie Mae and Freddie Mac — the mortgage financing giants that the federal government took full control of during the financial crisis.

“I imagine sometime in September, early October we’ll be making a decision” with regard to the banks organizing the share sale, he said. “One lead, two leads. And then, a deal of this size, every firm on the street is going to be involved,” he said, referring to Wall Street. “We want a high quality group of institutional, international investors. And we’re going to carve out some for the American people.”

Bessent also said that a 3% to 6% stake sale “would work out to at least” $30 billion.

He reiterated that one consideration with regard to Fannie and Freddie is ensuring there’s no increase in the premium on mortgage rates compared with Treasury yields.

Trade Talks

Turning to trade, Bessent said he expects to meet with his Chinese counterpart, Vice Premier He Lifeng, at the end of October or beginning of November. He said this week’s trip by Vice Commerce Minister Li Chenggang to Washington “is more of a technical visit and nothing to do with the ongoing trade negotiations.”

Speaking on a day when so-called secondary tariffs kicked in on US imports from India, Bessent said that “at the end of the day, we will come together.” Trump imposed a 25% surtax on India over its purchases of Russian oil, bringing his levy on the nation to 50%.

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