Fed has unwisely paid little attention to the huge volume of money its accommodative polices have created
While Volcker fought inflation by restraining growth in money supply, Powell’s favoured approach is aggressive interest rate hikes.
He also seems ready to lower rates if we enter recession.
Fed did not try out the scenario that most concerns many experts: the economy plunges into a deep recession, but consumer prices and interest rates remain high. This was exactly the real-life “stagflation” scenario confronted by Volcker
Fed increasing the rate of interest it pays large financial institutions to keep their money with the central bank instead of lending it out. For banks, this means higher rates on their Fed reserve accounts.
Sheila Bair FT 22 July 2022
https://www.ft.com/content/b82082c9-d26a-47a5-8b1a-34121f572645
The writer is a former chair of the US Federal Deposit Insurance Corporation and a senior fellow at the Center for Financial Stability
https://centerforfinancialstability.org/
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