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Fed's Powell embraces the reality of “untrustworthy” monetary policy in the new era

Be so patient with Federal Reserve officials trying to control the future of the US economy: They do it up when they go. It was an important removal from a speech late Friday by the Federal Reserve Chairman Jerome Powell at a financial conference in California. "There is no real precedent for the normalization process, and we have adapted our approach along the way," Powell said. In the wake of the 2008 financial crisis, the US central bank took unprecedented steps to look up an economy in tatters and a banking system on the verge of collapse. These steps included the purchase of approximately $ 3.7 billion of US government bonds and mortgage loans to push down long-term interest rates. The strategy was designed and implemented under Powell's predecessors, former chairs Ben Bernanke and Janet Yellen; nothing like it had ever been done. The Fed has now begun to shrink its approximately $ 4 trillion balance sheet, part of a process described as "normalization" of monetary policy. But these efforts are untested, and the stock market lowered at the end of December, officials were reconsidering a normal plan that they had just completed a year earlier. Powell's speech was remarkable in part because it is expected to be among them The latest public comments from Fed officials before the next monetary policy meeting, scheduled for March 1 9-20, but he is busy appearing on CBS "60 minutes" – program this weekend. In recognition of how dramatically conditions have changed since…

Be so patient with Federal Reserve officials trying to control the future of the US economy: They do it up when they go.

It was an important removal from a speech late Friday by the Federal Reserve Chairman Jerome Powell at a financial conference in California.

“There is no real precedent for the normalization process, and we have adapted our approach along the way,” Powell said.

In the wake of the 2008 financial crisis, the US central bank took unprecedented steps to look up an economy in tatters and a banking system on the verge of collapse. These steps included the purchase of approximately $ 3.7 billion of US government bonds and mortgage loans to push down long-term interest rates. The strategy was designed and implemented under Powell’s predecessors, former chairs Ben Bernanke and Janet Yellen; nothing like it had ever been done.

The Fed has now begun to shrink its approximately $ 4 trillion balance sheet, part of a process described as “normalization” of monetary policy. But these efforts are untested, and the stock market lowered at the end of December, officials were reconsidering a normal plan that they had just completed a year earlier.

Powell’s speech was remarkable in part because it is expected to be among them The latest public comments from Fed officials before the next monetary policy meeting, scheduled for March 1

9-20, but he is busy appearing on CBS “60 minutes” – program this weekend.

In recognition of how dramatically conditions have changed since the financial crisis, the 105-year-old central bank recently began a year-long review of long-term monetary policy and its ever-evolving communication strategy.

The work covers a number of hall lounge events –

“We live in a time of intense scrutiny and reduced confidence in the public.”

The review “may not make major changes,” said Powell in California. institution’s around the world, “Powell added.” We are determined to work hard to build and maintain public confidence. “The Fed’s review is actually particularly intense, as large Wall Street economists have been given historic precedents for to evaluate their effectiveness.

Even President Donald Trump has put pressure on the Fed by routinely criticizing Powell – his own deputy to the post – to raise interest rates too quickly and pinch the economic stimulus from the tax cuts.

Fed officials say that they have not even determined how large the central bank’s balance sheet should be when the normalization process is completed.

According to Powell, the total assets that the central bank now holds are approximately one quarter of the gross national product, up from 6% in 2006, before the financial crisis struck.

“We will adjust the details of our normalization plans for financial and financial conditions justify, “Powell said. “We expect to announce further details of this plan reasonably soon.”

New rules established that the crisis awakens requires the banks to retain more money and other readily available liquidity in order to reduce the likelihood of a weakening driving on deposits.

Many of these banks have chosen to simply deposit extra money on the Fed, which currently pays an attractive rate of interest on the savings of 2.4%.

“Because of both new liquidity rules and improved governance, banks now have much higher levels of cash than high-quality assets,” Powell said in the speech.

Powell also raised the growing discussion on whether the Federal Reserve would allow the economy to run hot for a while – keeping interest rates low – even though US inflation rose above the central bank’s 2% target. In monetary jargon, it is known as a “makeup strategy.” Such strategies “deserve serious attention,” Powell said. ” However, they are largely unfaithful, and we have reason to question how they would perform in practice. “

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