Treasury vs. The Fed: Bessent Pushes to End "Permanent QE" Era Amidst Liquidity Shifts

USD | US Treasuries | Federal Reserve

A significant ideological clash is brewing in Washington as U.S. Treasury Secretary Scott Bessent launches a public campaign to overhaul the Federal Reserve‘s mandate, calling for a “slimming down” of the central bank’s role in the economy.

The Push for a “Traditional” Fed

Bessent has explicitly criticized the Feds post-2008 policy framework, labeling the era of quantitative easing (QE) as an “engine of inequality” that artificially inflated asset prices for the wealthy while leaving the broader economy behind. In a recent statement, Bessent confirmed the administration is interviewing candidates for the next Fed Chair who align with a specific vision: ending the “permanent QE” experiment.

The Treasurys objective is to return the Fed to a singular focus on price stability, stripping away its expanded influence on general economic management. Bessent argues that the Fed lacks the fiscal discipline required to manage a massive balance sheet and should retreat from the limelight to become a more predictable, background institution.

The Paradox: Stealth Liquidity Injection?

While the political narrative focuses on shrinking the Fed's footprint, the central bank's “plumbing” suggests a different reality. In December 2025, the FOMC quietly removed the $500 billion daily limit on its Standing Repo Facility (SRP).

Market Implications:

• The “Ceiling” Mechanism: The SRP acts as a ceiling for short-term rates. By removing the cap, the Fed has effectively signaled it will provide unlimited liquidity to eligible institutions against Treasuries to prevent rate spikes.
• Contradictory Signals: While the Treasury calls for a reduction in state intervention, the removal of SRP caps creates a permanent, unlimited backstop for the bond market—functionally similar to a “stealth” liquidity safety net.

Investors should watch for friction between the Treasury‘s austere rhetoric and the Fed’s operational necessity to keep markets liquid, which could introduce volatility to the USD and US Treasury yields as 2026 approaches.