Fed Staff Suggest More Financial Risk Concern Than Powell


Photographer: Stefani Reynolds / Bloomberg

Federal Reserve staff members gave a potentially more troubling assessment of financial stability risks at the central bank’s policy meeting last month than the one publicly presented by President Jerome Powell.

Speaking to reporters on January 27 after the Fed’s last policymaking meeting, Powell called generally “moderate” financial stability vulnerabilities. Central bank staff gave a less optimistic assessment in their presentation at the January meeting, telling policymakers that vulnerabilities overall were “notable,” according to the Minutes of the meeting released Wednesday.

Powell agrees with the staff’s overall assessment, but was speaking more generally to reporters than the granular approach taken by Fed economists in their presentation to the Federal Open Market Committee, according to a Fed official. familiar with the matter.

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The Fed’s assessment of risks to financial stability is important because it can play a role in determining the central bank’s stance on monetary policy and its approach to financial regulation. If policy makers consider the weaknesses of the financial system to be high, they can tighten the rules governing banks or even increase borrowing costs to try to control the excesses they see.

Fed officials showed no sign at last month’s meeting of wanting to back down soon in their support for the economy and financial markets hit by the pandemic. They hoped that it would take “some time” before the conditions to reduce the massive buying of bonds were met, according to the minutes of the meeting.

Currently, the Fed is buying $ 120 billion in assets per month – $ 80 billion in Treasuries and $ 40 billion in mortgage-backed securities – and has pledged to maintain that pace until it makes “additional substantial progress. “toward its targets of maximum employment and 2% inflation.

Read more: Fed officials saw pace of bond buying continue for ‘some time’

The question of when to start cutting back on those purchases could arise later this year as the economy gathers momentum with a more widespread distribution of vaccines to combat Covid-19 and even more spending from the federal government, Fed watchers said. That could be particularly the case if equity and asset markets continue their seemingly inexorable advance and already lax financial conditions ease further.

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