Warsh: the Federal Reserve will remain independent
The Fed Chair reiterated his intention to put interest rates back at the heart of monetary policy and his support, in the long term, for a reduction in the central bank’s balance sheet
“The Federal Reserve will remain independent.” Chairman Kevin Warsh reiterated this during a panel discussion with ECB President Christine Lagarde at the Sintra Forum in Portugal. Warsh went on to add that inflationary risks have eased.
Interest rates must once again become the main tool, and the budget will have to be cut
The Fed Chair reiterated his intention to put interest rates back at the heart of monetary policy and his support, in the long term, for a reduction in the central bank’s balance sheet.
“It’s no secret that as far back as 2011 I believed the Fed’s balance sheet should be smaller,” said Warsh. According to the Fed chairman, “interest rates should be the main tool through which we conduct monetary policy”, whilst recourse to the central bank’s balance sheet should be reserved for times of crisis.
“Different rules may apply during a crisis,” he said, explaining that interest rates have a direct impact on the financing conditions for households and businesses, whilst the Fed’s balance sheet operates primarily through asset prices and signalling effects.
Warsh pointed out that the Fed had set up a working group comprising external experts to review, amongst other things, the role of the balance sheet in the conduct of monetary policy.
