Federal Reserve faces two challenges

- Advertisement -spot_imgspot_img
Federal Reserve faces two challenges

Although the Fed’s interest rate hike is not necessarily surprising, BNR’s house economist Han de Jong thinks that the US central bank was faced with a major issue. ‘There were also considerations not to do it.’

Although the Fed’s interest rate hike is not necessarily surprising, BNR’s house economist Han de Jong thinks that the US central bank was faced with a major issue. ‘There were also considerations not to do it.’ (ANP / AFP)

According to De Jong, the Fed is facing two major challenges. On the one hand, there is the high inflation, which has been there for quite some time. “And to meet that challenge, they’ve been raising interest rates for ages,” he says. “And he’ll have to go up even further, they’ve said in the past.”

In addition, the Fed is also dealing with serious unrest in the financial markets due to the collapse of Silicon Valley Bank, which the US central bank must also deal with. ‘And it is at odds with each other, because the problems at the SVB were caused by the sharp rise in interest rates, given the positions they had,’ explains De Jong, who also emphasizes that SVB had indeed taken too much risk.

In the press conference of Fed boss Jerome Powell it also became clear that fighting inflation is a priority over potentially fueling financial unrest. ‘If that unrest continues,’ continues De Jong. “Then the Fed has other tools to do something about it.”

supervision

In that same speech, Powell talked about tightening supervision of banks, which Silicon Valley Bank also lacked. De Jong: ‘The Fed is not only responsible for monetary policy, but also for supervision of the banks. And if banks go bankrupt, the regulator must also be looked at.’

“42 billion dollars was never seen before”

House economist Han de Jong

When asked, Powell admits that there were already concerns about Silicon Valley Bank, and that regulators were already talking to the bank’s board about how to proceed. ‘But in the end they were completely amazed by the speed with which deposits were withdrawn from the Silicon Valley Bank shortly before the collapse,’ says De Jong. $42 billion. That has never been seen before, and that’s because nowadays you can take money away with a few mouse clicks.’

Research

As a result, the Fed is now opening a supervisory inquiry; they still don’t fully understand how it could have happened. De Jong therefore expects changes to be made to the rules. “Smaller banks are monitored less closely than larger banks, and that is about to change,” he says. ‘But I also think that the enormous speed with which deposits can be withdrawn is a reason for change.’


- Advertisement -spot_imgspot_img
Latest news
- Advertisement -spot_img
Related news
- Advertisement -spot_img