Fed activity | GeorgMedia

September 23, 2021

Fed’s Powell says he wasn’t aware two top policymakers were actively trading stocks as he promises a review of rules

Fed Chair Jerome Powell said he wasn’t aware of “specifics” behind stock trades made by two top policymakers while in office.
He avoided saying he has confidence in Dallas and Boston Fed presidents Robert Kaplan and Eric Rosengren in a press conference Wednesday.
Powell pledged to review the rules for Fed officials, saying: “We need to make changes, and we’re going to do that as a consequence of this.”
Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Federal Reserve boss Jerome Powell has said he wasn’t aware of the specific trading activity carried out by two regional Fed presidents, and brushed off the chance to back the top policymakers facing questions about apparent conflicts of interest.

Powell was asked Wednesday whether he still has confidence in Dallas Fed President Eric Rosengren and Boston Fed President Robert Kaplan being able to do their jobs.

“In terms of having confidence and that sort of thing, I think, no one is happy. No one on the (Federal Open Market Committee) is happy to have these questions raised,” he responded in a post-Fed meeting press conference.

Financial disclosures first reported by The Wall Street Journal showed Kaplan and Rosengren made multimillion-dollar trades, some in popular stocks such as Apple and Tesla. These came as the Fed significantly expanded its asset purchases to provide unprecendented support for the pandemic-hit US economy.

Both have expressed regret for their investment decisions and have pledged to divest their money by the end of this month to avoid any possible conflict of interest. Some advocacy groups have called for the Fed presidents to resign from their positions, arguing that their actions could make Americans lose trust in the central bank.

Powell said that before media reports of their stock trades, he hadn’t known of the policymakers’ actions.

“I was not aware of the specifics of what they were doing,” he said.

Pointing to three existing restrictions, Powell noted Fed officials are already subject to certain rules around securities. First, ownership of certain assets, such as bank securities, is not allowed. Second, there are specific times – such as around FOMC meetings – when officials are not allowed to trade at all or to buy or sell financial assets. Third, officials must make annual financial disclosures.

“This has been our framework for a long time, and I guess you’d say it’s served us well,” Powell said. “The other thing you would say: that it is now clearly seen as not adequate to the task of really sustaining the public’s trust in us.”

“We need to make changes and we’re going to do that as a consequence of this,” he added.

The Fed will carry out a thoroughgoing and comprehensive review and consider ways to further tighten rules and standards, Powell promised. However, he would not be drawn on a timeline or to suggest what changes could be made.

When it came to talking about his own holdings, Powell said he has owned municipal securities – which the Fed bought last year for the first time – for many years.

But Powell said the holdings were a “coincidence,” because he hadn’t expected the Fed to buy munis to prevent a collapse in the market. He isn’t an active trader, he added, saying he had cleared any conflicts of interests with ethics officials.

“Munis were always thought to be a pretty safe place for a Fed person to invest because the law was that the Fed would never buy municipal securities,” he said.

Read the original article on Business Insider

August 18, 2021

The Fed hints it’ll start reining in pandemic-era stimulus later this year

Minutes from the Federal Reserve’s July meeting reveal when it could start removing policy support.
Most participants saw reason to start shrinking the Fed’s emergency asset purchases later this year.
Still, members disagreed on the speed, schedule, and composition of tapering purchases.
See more stories on Insider’s business page.

There’s an end in sight for the Federal Reserve’s drastic economic support.

A majority of the central bank’s policymakers determined late last month the Fed could start reducing the amount of money it’s feeding into the economy as early as this year, minutes from the Federal Open Market Committee’s July meeting showed Wednesday.

“Most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes said.

The statement is the first to reveal any kind of timeline for the Fed’s tapering of the asset purchases that began at the start of the pandemic. Paired with near-zero interest rates, these measures were meant to promote borrowing and support financial markets.

Still, the minutes show just the first step toward adjustment.” The Fed isn’t any closer to formally announcing the reduction of their extraordinary support,” Ed Moya, senior market analyst at OANDA, said in a note, adding an announcement is most likely to land after the November FOMC meeting.

The shift in outlook was tied to progress toward the Fed’s two recovery goals. Fed Chair Jerome Powell had long said supportive policy would remain in place until “substantial further progress” was made toward above-2% inflation and maximum employment.

Attendees at the July meeting determined that criterion was “satisfied” for the Fed’s inflation goal, and “as close to being satisfied” for its employment target, according to the minutes. Because of that progress, several FOMC members noted that strong economic conditions warranted tapering its Treasury and mortgage-backed security purchases “in coming months.”

Fed still split on the details

The taper timeline didn’t receive unanimous backing. Several participants said a reduction in asset purchases should come early next year instead, noting the labor market hadn’t healed enough to warrant a pullback. Others felt that tapering shouldn’t happen “for some time” due to rising COVID cases and their effect on hiring.

And details around the Fed’s eventual tapering are scant. FOMC members laid out a “range of views” on how quickly they should shrink purchases. Some preferred completely ending asset purchases before the Fed lifted interest rates, while others argued reasons for tapering were different than reasons for raising rates.

Disagreements also emerged over which purchases should be tapered first. Most participants said shrinking the Fed’s buying of Treasurys and mortgage-backed securities proportionally was most effective. However, some said reducing MBS purchases more quickly made sense due to surging home prices. A handful of regional Fed presidents have raised concerns about the red-hot housing market in recent months and mulled a faster withdrawal of MBS purchases.

The FOMC next meets on September 21 and 22, meaning any policy change is still more than a month away. Powell will speak at the central bank’s annual symposium in Jackson Hole, Wyoming, which is scheduled to take place from August 26 to 28.

Read the original article on Business Insider

August 2, 2021

Fed’s Kashkari warns Delta variant fears are keeping millions from restarting work and could slow the labor market’s recovery

FILE PHOTO: Minneapolis Fed President Neel Kashkari speaks during an interview at Reuters in New York February 17, 2016. REUTERS/Brendan McDermid — Thomson Reuters

Concerns about the highly contagious COVID-19 Delta variant are holding millions back from returning to work, Neel Kashkari said Sunday.
That could drag on the US labor market recovery, the Minneapolis Fed president told CBS.
The sooner vaccinations bring Delta under control, the better off the economy will be, the Fed policymaker said.
Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

As many as 9 million Americans are holding back from returning to work as the highly contagious Delta variant spreads, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday.

That reluctance could slow the US labor market’s recovery, the Fed official told CBS’s chief political analyst John Dickerson on “Face the Nation.”

“We believe that they’re out of work because they’ve been nervous about COVID, because of childcare issues, because of these enhanced unemployment benefits,” Kashkari said.

The Delta variant is the most common source of new cases in the US, with only two states at low risk of infections from it – Massachusetts and Vermont. Over the past two weeks, COVID-19 cases have increased by 148%, hospitalizations by 73%, and deaths by 13% in the US, according to a New York Times database.

The Federal Reserve policymaker said he had hoped the job market would revive in the fall with millions going back to work, and he still expects that to be the case.

“But if people are nervous about the Delta variant, that could slow some of that labor market recovery and therefore be a drag on our economic recovery,” he said. “So the sooner we can get people vaccinated, the sooner we can get Delta under control, the better off our economy is going to be.”

Kashkari is one of the more dovish members of the Fed’s Federal Open Market Committee, which manages the nation’s money supply by setting monetary policy.

The labor market is one of the most important measures of slack in the US economy. When businesses run out of people to hire, wages rise, and that risks setting off an inflationary spiral.

Vaccine distribution and the reopening of the US economy have pushed jobless claims to a pandemic-era low of 400,000 as people take up roles. But nearly 10 million people remained unemployed by the end of June this year.

Over the past few months, rising inflation has awakened fears that the Fed would have to rein it in by raising rates aggressively.

Kashkari, like most Fed officials, believes the current high level of inflation is transitory. They believe it is being driven by large price increases for a few industries – like autos, travel, and transport – that are coming back from pandemic-related inactivity, not the economy as a whole.

If the COVID-19 pandemic had not occurred, the US economy would likely have kept adding jobs in 2020, Kashkari said.

“The last recovery took 10 years to put everybody back to work,” he said, possibly in reference to the aftermath of the Great Recession. “We cannot have another 10-year recovery.”

Read the original article on Business Insider

March 19, 2021

The Fed will end a pandemic-era capital break it gave to Wall Street banks

The Fed will end a pandemic-era rule that eased banks’ capital requirements on March 31.
The policy allowed major banks to hold less cash against Treasurys and was meant to spur lending.
The announcement fueled a short jump in Treasury yields and dragged bank stocks lower.
See more stories on Insider’s business page.

A rule change that eased capital requirements for major banks will expire as planned on March 31, the Federal Reserve said on Friday.

The pandemic-era policy to give banks relief from what is formally called the supplementary leverage ratio allowed Wall Street firms to keep less cash on hand against Treasurys than usual. The rule aimed to free up banks’ abilities to lend during the downturn, as well as cut down on bond-market froth. By no longer counting Treasurys and central bank deposits when calculating the amount of reserves needed, banks would have more cash to lend out to struggling businesses and households.

The SLR relief was slated to expire at the end of the month, yet investors had been looking to the Fed to clarify whether it would extend the rule. While banks’ quarterly reports showed a robust recovery through 2020, some had expected the relief would continue as part of the Fed’s ultra-easy policy stance.

That group’s reaction to the Friday announcement was captured in knee-jerk reactions across markets. The 10-year Treasury yield temporarily shot higher before paring most of the sudden gains. Bank stocks faced more permanent losses, with JPMorgan, Goldman Sachs, and Morgan Stanley all tumbling immediately after the open.

The central bank said it will soon seek public comment on adjustments to the SLR. New dynamics in the bond market and the broad economic recovery could warrant additional rule changes, according to the Fed.

“Because of recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Board may need to address the current design and calibration of the SLR over time to prevent strains from developing that could both constrain economic growth and undermine financial stability,” the Fed added in a statement.

Still, such adjustments won’t erode the strength of banks’ capital requirements, the central bank noted.

The SLR was formed in 2014 out of a broader set of capital requirements put in place after the global financial crisis. The international regulations, known as Basel III, seek to mitigate financial-system risk by mandating that banks maintain certain ratios of cash in accordance with their leverage.

Implementation of the new rules in 2009 gave the Fed a new tool with which to ease monetary conditions during the coronavirus recession.

Read the original article on Business Insider