Mariner S. Eccles Federal Reserve Building in Washington, DC, Friday, September 17, 2021.
Stephanie Reynolds | Bloomberg | Getty Images
Next week, the Federal Reserve Board will hold a large meeting under a cloud of ethical dilemmas and a policy-making committee with fairly clear divisions about the future path.
The market primarily expects the Fed to follow a two-day session without making major decisions, but the first, historically simple pandemic-era accommodations to slowly but soon end. But it’s an important nod.
“Tapering” is the word for the day when the post-meeting statement will be released on Wednesday, at which point individual officials will also release forecasts for future interest rate arcs as well as economic growth and inflation. To do.
All of these are set in the context of controversy.According to recent news reports, Fed officials I have traded stocks and bonds It can be influenced by their policy decisions, at least indirectly.
For the normally stable federal government, the current situation is unusual and can create some interesting dynamics.
“I think it’s embarrassing for the Fed. It had a squeaky reputation,” said Greg Barriere, US policy strategist at AGF Investments. Mainly local presidents involved Robert Kaplan in Dallas and Eric Rosengren in Boston. “But I don’t think it will change the course at all. Assuming no other shoes to drop, I think it will soon be a rearview mirror.”
Vallier said the issue would help fuel Fed critics such as Senator Elizabeth Warren, who has been vocally criticizing the Fed’s looser regulatory approach since the 2008-2009 financial crisis. rice field.
More than that, the Fed lives on its credibility, and some of the recent problems may be denting it.
There is a market reliability issue. Wall Street and investors need to believe that the Fed is at least nearly unified in its monetary policy approach to setting market-impacting interest rates and related movements. Next, there is the trust of the people. When confidence in Washington’s institutions plummets, ethical failures only add to it and can affect such delicate times in particular.
“The ethics here look bad. They should have known better,” said Joseph Flavorgna, chief economist of Natixis’ Americas and former chief economist of the National Economic Council during the Trump administration. Said. “If you lose that moral authority, it’s a problem.”
Rosengren, Kaplan, and other Fed officials who traded shares did not violate any law or policy. In fact, it is part of the leveled criticism of some circles. After the financial crisis, the Fed did not do house cleaning on internal rules to ensure avoidance of the types of disputes revealed during the crisis.
“Remember, they already have [trading] For example, there are rules imposed on banks, but the Fed’s governor does not follow the same rules, “said Christopher Hollen, a Fed veteran and now chairman of the Whalen Global Advisors. [the post-crisis banking reforms], All Washington agencies have toughened small disputes like insider trading. Still, is the Fed somehow exempt from those rules? They look ridiculous. “
As part of that, the Fed states that it follows the rules of other government agencies and has supplementary rules.
Jerome Powell, appointed chairman of the Federal Reserve Board of Governors, shook hands with Senator Elizabeth Warren of the Massachusetts Democratic Party and testified at a confirmation hearing at the Senate Bank, Housing and Urban Committee of Capitol Hill. In Washington DC.
Sole Robe | AFP | Getty Images
Still, a central bank spokesman said Thursday Jerome Powell He instructed the Federal Reserve Board staff to “freshly and comprehensively consider the ethical rules regarding acceptable financial holdings and activities by senior Federal Reserve officials.”
“This review will help identify ways to further strengthen these rules and standards. The Board will make changes as necessary and any changes will be added to the Reserve Bank Code of Conduct,” the authorities said. Added.
The controversy faces the Fed’s delicate background.
Central bank Preparing to take the first step After lowering benchmark interest rates to zero and doubling the size of the balance sheet through bond purchases in excess of $ 4 trillion, policy will be normalized again.
The Federal Reserve Board is divided by policy. According to the number of Goldman Sachs, six officials who spoke publicly about the issue of declining asset purchases are in favor and six are against. About inflationPowell expects price pressures to recede fairly quickly, but at least six Fed officials, including Governor Christopher Waller, expect inflation to continue to exceed the central bank’s 2% target after 2021. He said he was doing it.
Another complexity thrown into the mix is that Powell’s term is set to expire in February, and the president. Joe Biden He will soon announce his preferred choice to lead the bank. Most of Wall Street expects Powell to be nominated again, but Biden is likely to step down from Randal Quarles as vice-chairman of banking oversight and use heavier hands on banking regulation.・ There is a growing feeling of being replaced by Governor Brainard.
In all these pressures, Powell needs to make sure that the Fed has a good understanding of policy and can remove some of the recent controversy.
“It’s no wonder Jerome Powell has been reappointed,” said Lavorguna, an economist at Natixis. “The administration will, of course, wait for the Fed to handle the taper and what the market is doing. That could be a deciding factor in whether he will be reappointed. “
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The Federal Reserve has been controversial after years of being “squeaky clean”
Source link The Federal Reserve has been controversial after years of being “squeaky clean”