The president of the Federal Reserve, Jerome Powell, said on Wednesday that any measure to retire from the United States Central Bank. The power to pay interest on reservations will be difficult and will take a lot of time to be implemented.
“If I wanted to have scarce reserves again, it would be a long, robust and volatile journey,” Powell said to a Senate Committee during a note.
“I would not recommend following this path” and if it had been done, it wouldn’t “spare.”
Speaking in front of a commission of the Senate, Powell was discussing power, implemented by the Fed in 2008, which allows the central bank to pay the interest to the institutions for the money they deposit in the central bank.
This power has gained unexpected importance in the financial crisis, after Fed has reduced its interest rates to zero levels and has started to buy securities in large quantities to provide further stimulus to the economy. This change was fundamental in the way the central bank implemented monetary policy.
Before 2008, the Fed maintained the reserves in the scarce system and used regular interventions to maintain the basic rate on the line. After 2008, the reserve levels exploded due to the purchase of securities and the Fed has maintained its basic rates aligned with its interest payment powers.
The challenge for the Fed is that while his system managed short -term rates very well, this made the central bank lose money. As an auto -definita institution, the Fed now pays more to banks to check the commissions of what he earns from the titles he has.
This concluded a long -standing situation on which the central bank contributed to covering the government’s deficits when excess profits. Fed will take time to return to profitability.
The central bank repeatedly stated that the profits and losses of the Fed do not affect its ability to achieve its monetary political objectives.
Senator Ted Cruz has put pressure on his peers of the Senate to end the power of the Fed to pay interest in the banks on the reserves, believing that this change will contribute significantly to the reduction of deficits.
Speaking with the senators, Powell said that when it comes to removing the power to pay interest on the reserves, “there is an illusion that would save money”. “It’s not like that,” he said.
Powell has also said that a substantial financial liquidity system also helps the banks to have the money they need to lend.
According to him, it will be difficult to end the power to pay interest on the reserves. “I think the inversion is an option that could be performed, but it would take years to perform, it would be a challenge and very volatile.”
Source: Terra
Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.
