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Please wait with representatives of the Federal Reserve who are trying to guide the future of the US economy: they make up as and when.
This was a key part of last Friday's speech by Federal Reserve Chairman Jerome Powell at an economic conference in California.
"There is no real precedent for the balance sheet standardization process, and we have adapted our approach along the way," Powell said.
In the aftermath of the 2008 financial crisis, the US central bank took unprecedented steps to consolidate a collapsing economy and a collapsing banking system. These measures included the purchase of approximately $ 3.7 trillion in US treasury bills and mortgage-backed bonds to lower long-term interest rates; the strategy was designed and implemented under Powell's predecessors, former presidents Ben Bernanke and Janet Yellen; nothing like it has ever been done.
The Fed has now begun to trim its balance sheet by about 4 trillion dollars, as part of a process called "normalization" of monetary policy. But these efforts were not put to the test either, and the weakness of the stock market at the end of December prompted officials to reconsider the return to normal that they had put in place a year ago. before.
Powell's speech was remarkable, in part because it should be among the last public comments from Fed officials before the next monetary policy meeting, scheduled for March 19-20, although it is scheduled for the CBS 60-minute program this weekend.
Recognizing how much the conditions have changed dramatically since the financial crisis, the 105-year-old central bank recently began a one-year review of its long-standing monetary policies and evolving communications strategy.
The effort includes a series of "city hall" events – called "Fed Listens" – held throughout the country.
The magazine "may or may not produce major changes," Powell said in California.
"We are witnessing a period of intense scrutiny and loss of confidence in public institutions around the world," said Powell. "We are committed to working hard to build and maintain public trust."
Indeed, the Fed's surveillance is particularly intense, as the great Wall Street economists have few historical precedents to assess their effectiveness.
Even President Donald Trump lobbied the Fed by regularly criticizing Powell – his own representative for the position at the head of the government – for raising interest rates too quickly and ending the economic stimulus package stemming from tax.
Fed officials say they have not even determined the size of the central bank's balance sheet once the normalization process is over.
According to Powell, total assets held by the central bank now account for about a quarter of gross domestic product, up from 6% in 2006, before the financial crisis.
"We will adjust the details of our standardization plans if economic and financial conditions warrant," Powell said. "We plan to announce further details of this plan shortly."
The new regulations introduced in the aftermath of the crisis are forcing banks to have more cash and other readily available cash to reduce the risk of declining deposit management capacity.
Many of these banks have chosen to simply deposit the extra money from the Fed, which currently pays an attractive interest rate on savings of 2.4%.
"Due to the new liquidity and management improvement regulations, banks now hold high quality liquid asset levels much higher than before the crisis," he said. said Powell in his speech.
Mr Powell also addressed the growing debate over whether the Federal Reserve would let the economy warm up for a while – by keeping interest rates low – even though the rate of interest in the economy is still low. US inflation exceeded the 2% target set by the central bank. In the jargon of monetary policy, we speak of "makeup strategy".
Such strategies "deserve serious attention," said Powell. "They are largely untested, however, and we have reason to doubt their performance in practice."
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