Republican US Senator Presses Fed Officials on Bond-Buying Policies, According to Reuters

By Michael S. Derby

U.S. Senator Rick Scott, an outspoken critic of the Federal Reserve’s bond-buying initiatives, recently addressed a new letter to central bank Chair Jerome Powell, expressing concern over the perceived slow progress in reducing the Fed’s balance sheet.

Scott’s letter, sent on Monday, followed a series of communications he had directed at the Fed’s newest board members—including Vice Chair Philip Jefferson and governors Lisa Cook and Adriana Kugler—inquiring about their views on the Fed’s ongoing efforts to trim its balance sheet.

In his correspondence with Powell, Scott wondered why the process, which has resulted in the Fed shedding approximately one trillion dollars in bonds, has advanced more slowly than anticipated. He remarked, “It is clear that your current plan to reduce the balance sheet is insufficient, and that it would never solve the problem of your massive balance sheet. It makes no sense to me why you cannot reduce the balance sheet at the same rate you have increased it.”

Scott also inquired whether the Fed would adopt a more “proactive” approach to its balance sheet reductions.

Currently, the Fed is allowing nearly $100 billion in Treasury and mortgage bonds to mature each month without replacing them. Although it has not actively sold any securities, some central bankers are considering the sale of mortgage bonds in the future.

The Fed’s balance sheet more than doubled from the spring of 2020 to the summer of 2022, peaking just shy of $9 trillion, leading to longstanding criticism that its asset purchases may distort financial markets.

Scott, in an interview, stated he had yet to receive any response to his letters, while a Fed spokesperson mentioned that the central bank would provide a reply. Scott reached out to Powell for similar insights back in January. According to a representative from Scott’s office, he has not received a written response but has discussed balance sheet matters in various in-person meetings with central bank officials over the years.

Additionally, in his most recent letters, Scott pressed for clarification on whether Fed officials support a bill he co-sponsored with Democrat Elizabeth Warren, aimed at making the Fed’s Inspector General position appointed by the president and subject to Senate confirmation. Currently, the Inspector General is appointed by the Fed chair, a structure that Scott, Warren, and several external experts argue leads to a conflict of interest. However, this legislation has not made significant headway.