Ms. Brainard said that if the Fed had been using the new strategy several years ago, “it is likely that accommodation would have been withdrawn later, and the gains would have been greater.”
Richard H. Clarida, the Fed’s vice chair and the head of the year-and-a-half review of the Fed’s policy framework that resulted in the updates, also highlighted the central bank’s new approach to full employment during a speech this week.
Low joblessness “will not, under our new framework, be a sufficient trigger for policy action,” Mr. Clarida said, absent pressing financial stability concerns or evidence that inflation is overheating or is likely to run hot.
The Fed’s revised statement emphasized that financial stability concerns will be an important consideration in a world where interest rates are likely to stay low for extended periods, driving investors to make bigger bets in hopes of richer payouts. But Ms. Brainard said monetary policy should not be the primary tool for fighting such bubbles.
Instead, she said, the Fed should use regulation and other forms of oversight to tamp down risks. As part of that tool kit, she said, banks should be retaining their capital — money they can readily tap — to make sure they remain healthy amid the pandemic stress.
“I don’t think they should be paying out dividends,” Ms. Brainard said of commercial banks. “I think they should be hanging onto their buffers.”
The Fed oversees large bank holding companies, and has not yet stopped them from paying dividends to their shareholders. Ms. Brainard objected to that decision.
Article source: https://www.nytimes.com/2020/09/01/business/economy/fed-economic-risks-brainard.html
Speak Your Mind
You must be logged in to post a comment.