FED REMAINS LOST IN SPACE. “..low levels of trust in government institutions have created a “challenging moment” for central banking” By Todd Horwitz, Bubba Trading

 

Words of Wisdom

Federal Reserve Board Chairman Jerome Powell on Friday gave a shout-out both to central banks’ independence but also their need to be transparent. Speaking at an event hosted by the Swedish central bank in Stockholm, Powell said the Fed’s independence is important to both its monetary policy and regulatory missions.

Mr. Powell said low levels of trust in government institutions have created a “challenging moment” for central banking. “In this environment, central banks cannot take our measure of independence for granted,” he said Friday in Stockholm at a conference marking the 350th anniversary of the Riksbank, Sweden’s central bank.

Mr. Powell didn’t elaborate on the U.S. economy or the short-term path of interest rates in his speech, and instead focused on broader themes concerning financial stability. During a moderated discussion that followed, Mr. Powell said the Fed has less reason to offer time-linked directions about its rate plans and other so-called forward guidance now that it is in the process of raising rates. The Fed has increased its benchmark short-term rate six times since December 2015, most recently in March, to a range between 1.5% and 1.75%.

After the 2008 crisis, when the Fed cut rates to near zero and attempted to stimulate growth with large bond-buying programs, it helped to further hold down borrowing costs by signaling in post meeting statements certain commitments regarding how long it would keep rates lower, a tool known as forward guidance. “I think forward guidance was very useful in the crisis…and I think it will have a much smaller role going forward,”

Mr. Powell said.

Mr. Powell said while central bank independence has often applied narrowly to monetary policy, research suggests that giving central banks a “degree of independence” in regulatory and financial stability matters also has led to better outcomes.

Keep those stops tight
Todd “Bubba” Horwitz

IN ASSOCIATION WITH

Financial Markets & Political Commentary

 

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About the author

Todd Horwitz - Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.