NEW YORK (Reuters) – The New York Federal Reserve’s once-unparalleled authority to oversee Wall Street has been weakened by a series of supervisory missteps and by a consolidation of power at the U.S. central bank’s Washington headquarters.
Current and former New York Fed employees say its ability to independently regulate the country’s largest banks began to deteriorate after the financial crisis, and got worse once U.S. Congress passed its landmark Dodd-Frank reform bill, prompting the Washington-based Federal Reserve Board of Governors to take a more active role.
Despite the Federal Reserve’s trillions of dollars in newly printed money, workers’ wages and overall U.S. inflation have failed to take off since the recession. Longer-term borrowing costs, from 10-year Treasury yields to 30-year home mortgages, have also compressed without any real signs of reversing. While this has perplexed many economists, transcripts of the U.S. central bank’s crisis-fighting meetings in 2009 show that Janet Yellen, then the head of the San Francisco Fed, was prescient in warning colleagues of these very problems.
“The bottom line is that we are faced with a situation in which inflation is undesirably low, and, even with large monthly employment gains, the level of resource slack will remain high for an extended period,” she said at a meeting in December of that year, when unemployment was nearly 10 percent and inflation was near zero. “In my forecast, the zero bound (for the Fed’s key interest rate) and the limits on unconventional policy constrain us from pursuing a more desirable and more expansionary policy for some time to come.”
The Federal Reserve faces two big challenges in the months and years ahead: how to finally “liftoff” after more than six years of rock bottom interest rates, and how to begin drawing down its $4.5-trillion balance sheet after three massive rounds of bond purchases. But, it turns out, those questions were being raised at the U.S. central bank as far back as 2009.
That year the Fed was experimenting with what would be its first round of bond-buying known as quantitative easing, or QE. According to transcripts of its June meeting, staff made two presentations on an “exit strategy” from the unconventional accommodation, with then Fed Chairman Ben Bernanke telling colleagues: “I promised we would focus today a good bit on our exit strategy, that is, on how we’re going to unwind the policies that we have put in place.”
The U.S. Federal Reserve just released full transcripts of its crisis-fighting meetings of 2009, when the U.S. economy was in the depths of recession and unemployment was soaring to 10 percent. Janet Yellen, who at the time was head of the San Francisco Fed, gave a sense of just how scary things were getting:
“The economic and financial news has been grim,” she told colleagues at a mid-March policy meeting, according to the transcripts. “Things are now so bad that I actually open the Greenbook with greater trepidation than my 401(k).”
(Reuters) – The head of the U.S. Federal Reserve took a swipe on Tuesday at unlawful and unethical behavior at banks, saying it raises questions over whether the values embedded on Wall Street have improved enough in recent years.
Fed Chair Janet Yellen cited the many improvements since the 2007-2009 crisis at both financial institutions and the U.S. central bank that monitors them. But large banks must continue to fix their internal governance and risk controls, she said, or the Fed will take “swift and meaningful” action.
March 2 (Reuters) – The Philadelphia Federal Reserve on
Monday named Patrick Harker, one of its directors and the head
of the University of Delaware, as its president and the newest
U.S. monetary policymaker.
Harker, 56, begins the job July 1 and succeeds Charles
Plosser, an outspoken and hawkish Fed official who retired on
Sunday after more than eight years at the helm.
NEW YORK (Reuters) – The Bank of Japan’s commitment to achieving its 2 percent price target is “unshakable,” its deputy governor said on Friday, signaling that he has no intention of watering down the goal despite a slowdown in inflation driven by slumping oil prices.
BOJ Deputy Governor Hiroshi Nakaso said Japan now has a good chance of witnessing a “true dawn” with the economy emerging from the hit from last year’s consumption tax hike and now back on a sustained growth path.
NEW YORK (Reuters) – Raising interest rates too late is safer than acting too early, an influential Federal Reserve official said on Friday, endorsing a high-profile research paper that argues that the U.S. economy, given time, can rebound to normal growth.
The paper by four top U.S. economists, presented on Friday to a roomful of powerful central bankers in New York, argues the Fed would be wise to keep rates at rock bottom for longer than planned and then tighten monetary policy more aggressively.
NEW YORK (Reuters) – The Federal Reserve should keep interest rates at rock bottom for longer than planned and then tighten monetary policy more aggressively since there is little evidence that the U.S. economy has entered a new era of slower growth, according to findings by an influential group of economists.
The research paper, presented on Friday to a roomful of powerful central bankers in New York, concludes that the Fed cannot be certain to what level it should aim to ultimately raise its key rate. But this equilibrium level, they say, has not fallen as low as claimed by those who warn of a “secular stagnation” in the United States.
NEW YORK (Reuters) – Low-yielding bond markets could abruptly “wake up” and reprice for tighter U.S. monetary policy, posing problems for the Federal Reserve as it approaches an interest rate hike, a top Fed official said on Thursday.
St. Louis Fed President James Bullard said in an interview with Reuters that the longer the U.S. central bank keeps rates near zero amid such booming markets, the greater the risk of damaging asset-price bubbles over the next few years.