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Axios
22-07-2025
- Business
- Axios
Powell should resign to protect Fed, El-Erian says
Federal Reserve chair Jerome Powell should step down in order to protect Fed independence, according to Mohamed El-Erian, long one of the bond market's most respected voices. Why it matters: As the White House steps up its attacks on the head of the U.S. central bank, El-Erian said protecting the institution's independence is crucial, and that independence is at risk with Powell at the helm. What they're saying: "If your objective is to protect the independence of the central bank, then it's better that he step down than he stays and the attacks multiply," El-Erian, the former PIMCO CEO and current president of Queen's College, Cambridge, told Axios. El-Erian said this is an unusual circumstance, given that Powell's term as chair expires next May and his replacement will be announced by the end of this year, which makes him a "lame duck" anyway. While the best-case scenario is that Powell stays and there are no attacks on the Fed, El-Erian said that is "not gonna happen." Context: Treasury Secretary Scott Bessent said "what we need to do is examine the entire Federal Reserve institution" in a CNBC interview on Monday. His comment is a red flag for El-Erian, who read it as the administration ratcheting up its attacks not just on Powell, but on the central bank in its entirety. Zoom out: On Powell's record overall, El-Erian said "if he was CEO of a company, he would have lost his job," given some policy mistakes and an alleged insider trading scandal under his leadership. Powell believed that inflation would be only transitory, which made the central bank slower to raise interest rates in 2022. The banking crisis in 2023 resulted in a "damning" report. Then there were allegations of insider trading among Fed officials, which is not allowed, resulting in new rules barring senior officials from actively trading or purchasing securities. (Powell was not among those accused.) Be smart: The U.S. central bank, like any institution, needs revising, said El-Erian, who took part in a G30 report on how the central bank could improve. If threats to Fed independence continue, that would result in a weaker dollar and a steeper yield curve with higher interest rates, El-Erian said.
Yahoo
30-04-2025
- Business
- Yahoo
Fed should ditch current policy framework, group of former top central bankers says
By Howard Schneider WASHINGTON (Reuters) -A group of former top world central bankers says the Federal Reserve should scrap its nearly five-year-old bias towards jobs and keep a stricter focus on inflation, a recommendation offered as the U.S. central bank conducts its own strategy review. The Fed should "always seek to bring inflation back to its 2% inflation target" and drop the current pledge to use periods of high inflation to offset periods when prices rise too slowly, said the panel, chaired by former New York Fed President William Dudley and including former central bank officials from China, Mexico, Japan, England, and Israel. The current approach of ignoring low unemployment as an inflation risk and viewing maximum employment as a "broad-based and inclusive goal" should also be dropped, the group said. "The Federal Reserve's monetary policy tools are ill-suited to ensuring that employment will necessarily be broad-based and inclusive when the economy is at full employment," the group said in a report issued by the G30, a private organization of former top central bank and finance officials. "Including this language in the Federal Reserve's monetary policy framework commits the Federal Reserve to an objective that the Federal Reserve cannot achieve in practice if it also wants to hit its 2% inflation target." The language on jobs was developed in the context of heightened concerns about economic inequality in the U.S. and tensions over police violence in U.S. cities. The Fed is in the middle of its own review of that operating strategy, which was put in place in August 2020, when the economy was still struggling through the COVID-19 pandemic and the aftermath of an unprecedented economic shutdown. Fed officials already seem inclined to revise their approach given the inflation struggles that emerged, though debate remains on key issues like how to manage potential tradeoffs between inflation and unemployment, and how to better describe the central bank's use of bond purchases as a monetary policy tool. 'LAST WAR' The G30 report, released on Wednesday, said the Fed's current framework made sense emerging from the 2010-2020 era of weak inflation and low interest rates, but slowed the Fed's response as inflation pressures began building in the wake of the pandemic and made the whole episode riskier than it needed to be. The framework, which led the Fed to promise it would keep interest rates low and continue buying government securities until the job market was healed from the pandemic shutdown, "weakened the inclination for the Fed to be preemptive as the risks to the outlook changed" and inflation began rising, the G30 report concluded. "In essence, the Fed ended up fighting the last war" from an era when inflation seemed lodged below the central bank's 2% target, and low rates of unemployment did not seem to have the same impact on rising prices, as had been the case in previous business cycles. The response, a combination of allowing higher inflation as a "make-up" strategy and pledging not to view low unemployment in itself as an inflation risk, made the Fed "slow to respond to evidence of strong growth, an extraordinarily tight labor market, and rising inflation in 2021." While subsequent rate hikes cooled inflation, the episode raised the risk the Fed would lose control of public expectations and have an even worse problem to fix. The rapid pace of rate hikes that was eventually used to attack inflation, meanwhile, contributed to stress in the financial sector. The group also recommended that the Fed change how it manages interest rates, issue more robust forecasts, and offer more explicit guidance on its use of bond purchases.
Reuters
30-04-2025
- Business
- Reuters
Fed should ditch current policy framework, group of former top central bankers says
WASHINGTON, April 30 (Reuters) - A group of former top world central bankers says the Federal Reserve should scrap its nearly five-year-old bias towards jobs and keep a stricter focus on inflation, a recommendation offered as the U.S. central bank conducts its own strategy review. The Fed should "always seek to bring inflation back to its 2% inflation target" and drop the current pledge to use periods of high inflation to offset periods when prices rise too slowly, said the panel, chaired by former New York Fed President William Dudley and including former central bank officials from China, Mexico, Japan, England, and Israel. The current approach of ignoring low unemployment as an inflation risk and viewing maximum employment as a "broad-based and inclusive goal" should also be dropped, the group said. "The Federal Reserve's monetary policy tools are ill-suited to ensuring that employment will necessarily be broad-based and inclusive when the economy is at full employment," the group said in a report issued by the G30, a private organization of former top central bank and finance officials. "Including this language in the Federal Reserve's monetary policy framework commits the Federal Reserve to an objective that the Federal Reserve cannot achieve in practice if it also wants to hit its 2% inflation target." The language on jobs was developed in the context of heightened concerns about economic inequality in the U.S. and tensions over police violence in U.S. cities. The Fed is in the middle of its own review of that operating strategy, which was put in place in August 2020, when the economy was still struggling through the COVID-19 pandemic and the aftermath of an unprecedented economic shutdown. Fed officials already seem inclined to revise their approach given the inflation struggles that emerged, though debate remains on key issues like how to manage potential tradeoffs between inflation and unemployment, and how to better describe the central bank's use of bond purchases as a monetary policy tool. 'LAST WAR' The G30 report, released on Wednesday, said the Fed's current framework made sense emerging from the 2010-2020 era of weak inflation and low interest rates, but slowed the Fed's response as inflation pressures began building in the wake of the pandemic and made the whole episode riskier than it needed to be. The framework, which led the Fed to promise it would keep interest rates low and continue buying government securities until the job market was healed from the pandemic shutdown, "weakened the inclination for the Fed to be preemptive as the risks to the outlook changed" and inflation began rising, the G30 report concluded. "In essence, the Fed ended up fighting the last war" from an era when inflation seemed lodged below the central bank's 2% target, and low rates of unemployment did not seem to have the same impact on rising prices, as had been the case in previous business cycles. The response, a combination of allowing higher inflation as a "make-up" strategy and pledging not to view low unemployment in itself as an inflation risk, made the Fed "slow to respond to evidence of strong growth, an extraordinarily tight labor market, and rising inflation in 2021." While subsequent rate hikes cooled inflation, the episode raised the risk the Fed would lose control of public expectations and have an even worse problem to fix. The rapid pace of rate hikes that was eventually used to attack inflation, meanwhile, contributed to stress in the financial sector. The group also recommended that the Fed change how it manages interest rates, issue more robust forecasts, and offer more explicit guidance on its use of bond purchases.
Yahoo
30-04-2025
- Business
- Yahoo
Fed should ditch current policy framework, group of former top central bankers says
By Howard Schneider WASHINGTON (Reuters) -A group of former top world central bankers says the Federal Reserve should scrap its nearly five-year-old bias towards jobs and keep a stricter focus on inflation, a recommendation offered as the U.S. central bank conducts its own strategy review. The Fed should "always seek to bring inflation back to its 2% inflation target" and drop the current pledge to use periods of high inflation to offset periods when prices rise too slowly, said the panel, chaired by former New York Fed President William Dudley and including former central bank officials from China, Mexico, Japan, England, and Israel. The current approach of ignoring low unemployment as an inflation risk and viewing maximum employment as a "broad-based and inclusive goal" should also be dropped, the group said. "The Federal Reserve's monetary policy tools are ill-suited to ensuring that employment will necessarily be broad-based and inclusive when the economy is at full employment," the group said in a report issued by the G30, a private organization of former top central bank and finance officials. "Including this language in the Federal Reserve's monetary policy framework commits the Federal Reserve to an objective that the Federal Reserve cannot achieve in practice if it also wants to hit its 2% inflation target." The language on jobs was developed in the context of heightened concerns about economic inequality in the U.S. and tensions over police violence in U.S. cities. The Fed is in the middle of its own review of that operating strategy, which was put in place in August 2020, when the economy was still struggling through the COVID-19 pandemic and the aftermath of an unprecedented economic shutdown. Fed officials already seem inclined to revise their approach given the inflation struggles that emerged, though debate remains on key issues like how to manage potential tradeoffs between inflation and unemployment, and how to better describe the central bank's use of bond purchases as a monetary policy tool. 'LAST WAR' The G30 report, released on Wednesday, said the Fed's current framework made sense emerging from the 2010-2020 era of weak inflation and low interest rates, but slowed the Fed's response as inflation pressures began building in the wake of the pandemic and made the whole episode riskier than it needed to be. The framework, which led the Fed to promise it would keep interest rates low and continue buying government securities until the job market was healed from the pandemic shutdown, "weakened the inclination for the Fed to be preemptive as the risks to the outlook changed" and inflation began rising, the G30 report concluded. "In essence, the Fed ended up fighting the last war" from an era when inflation seemed lodged below the central bank's 2% target, and low rates of unemployment did not seem to have the same impact on rising prices, as had been the case in previous business cycles. The response, a combination of allowing higher inflation as a "make-up" strategy and pledging not to view low unemployment in itself as an inflation risk, made the Fed "slow to respond to evidence of strong growth, an extraordinarily tight labor market, and rising inflation in 2021." While subsequent rate hikes cooled inflation, the episode raised the risk the Fed would lose control of public expectations and have an even worse problem to fix. The rapid pace of rate hikes that was eventually used to attack inflation, meanwhile, contributed to stress in the financial sector. The group also recommended that the Fed change how it manages interest rates, issue more robust forecasts, and offer more explicit guidance on its use of bond purchases. Sign in to access your portfolio
