Could the Federal Reserve and Treasury Department be led by the same person?
Recent reports from Washington suggest that Trump is considering appointing the current Treasury Secretary, Scott Besant, as the next Federal Reserve Chair. This idea has created wide-scale shock in political and financial circles, with market analysts, legal scholars, and even senators from both parties questioning the feasibility and risks of such a plan.
Although there is no legal prohibition, this move would challenge the separation system maintained since 1951 between U.S. monetary and fiscal policy. The core of this system is the division of national debt management and interest rate control to maintain the neutrality and professionalism of the central bank.
While not explicitly banned, the division of powers is under threat
The Federal Reserve once allowed Treasury Secretaries on the board in its early days, but post-World War II, the roles were formally divided to prevent monetary policy tools from being influenced by fiscal objectives. Currently, this system is not only a symbol of the Fed's independence but also a foundation for global investors evaluating the transparency of U.S. economic governance.
If the Treasury Secretary directly influences monetary policy, it could disrupt this institutional firewall and raise concerns about "printing money to fill fiscal gaps." Although Besant himself is somewhat renowned in fiscal policy, the overlap in roles could lead to an imbalance in policymaking and even influence from partisan interests.
Heightened market alertness and increased volatility of risk assets
In recent years, the Fed has frequently found itself in political turmoil when addressing inflation issues. Now, the "dual-role" proposal has further unsettled investors. Previously, the Trump administration's tariff policies and calls for interest rate cuts had already caused intense volatility in the bond market, with asset yields spiking.
Market analysts widely fear that if Besant controls both interest rates and fiscal policy, he may struggle to resist presidential demands for short-term economic growth, which could be detrimental to long-term inflation control.
Especially against the backdrop of rising U.S. debt, if policymakers lose the support of independence, it may further shake confidence in the credit of the dollar.
Political effects may overshadow economic effectiveness
The current environment for Fed policy execution is becoming increasingly complex due to the upcoming election and Trump's continued pressure for rate cuts. Although the rumor of Besant potentially holding dual roles is unconfirmed, in the context of an election year, such an arrangement could be seen as an attempt by the president to strengthen his control.
In practice, this arrangement could create internal coordination conflicts. For instance, the Treasury might advocate for debt issuance to stimulate the economy, while the Fed's efforts to raise rates to curb inflation would form a direct clash.
If Besant holds both roles, he would undoubtedly face greater political pressure and functional conflicts, struggling to balance presidential intentions with the opinions of Federal Reserve voting members.
International experience and academic voices warn against overstepping
Experience in various countries shows that concentrating monetary and fiscal functions in one individual can easily lead to short-sighted policies and inflation risks. Historically, the close coordination between Nixon and then-Fed Chair Arthur Burns is cited as a factor in the 1970s "stagflation" shadow.
The economic community generally holds reservations about Trump's move. Whether labeled as "fiscal dominance" or approached from a governance angle, scholars and market participants fear this could substantially disrupt the balance of institutional mechanisms.
The credibility of the Federal Reserve may be put to the test
As the U.S. economy strives for stability amid high inflation and debt, the Fed's policy credibility becomes a crucial asset for its global financial leadership. If inconsistencies or political dominance in policy become apparent in the future, it could harm its market trustworthiness.
The prevailing market expectation is that regardless of whether the "Besant dual role" becomes a reality, the rumor has already exposed the current tension between fiscal pressure and monetary policy. Against the backdrop of a rising global de-dollarization sentiment, whether the U.S. design can still ensure decision-making independence will be a genuine "test of confidence."
