The Federal Reserve’s admission late Friday that its policies threaten financial stability doesn’t go far enough | Tech US News

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WASHINGTON DC-Dennis Kelleher, co-founder, president and CEO of Better Markets, issued this statement in response to the release of the Federal Reserve’s semiannual financial stability report last Friday:

“The Federal Reserve’s latest semiannual report on financial stability, released late Friday, finally acknowledged something we’ve been saying for a long time — its policies pose risks to financial stability, the economy and the livelihoods of all Americans. The Fed’s past and present actions will almost certainly result in a recession that will range in severity from a soft landing to a catastrophic downturn. Regardless, the recession is likely to put millions of Americans out of work, lower their living standards, lower their wages, drain their savings, and otherwise cause pain to Main Street, as even Fed Chairman Powell has stated.

“That’s why the Fed’s acknowledgment of its role in contributing to all of this was far too narrow and incomplete. Until the Fed acknowledges and understands the depth and breadth of the risks that its policies have created, its ability to adequately address those risks will remain significantly impaired. This is especially true given the series of multiple simultaneous economic, financial and geopolitical shocks against which its policies were announced and implemented.

“While the Fed’s Financial Stability Report focused on the obvious risk to financial markets from ‘higher than expected interest rates,’ the risks are far greater and stem not only from the current massive policy reversal, but also from the Fed’s indiscriminate, widespread and clearly excessive deluge liquidity in financial markets and sub-zero real rates in response to the COVID-19 pandemic. Interestingly, these policies only ended in March of this year – two full years after the onset of pandemic-induced market stress and a flood of fiscal liquidity in response. These actions by the Fed have resulted in significant misjudged risk in the financial markets, massive accumulation of debt based on this misjudged risk, the proliferation of so-called “zombie” companies, and increased moral hazard and risk taking.

“With Fed policies now moving rapidly and substantially in the opposite direction, these market effects caused by Fed policies threaten to diminish rapidly and dramatically, causing defaults and disruptions in financial markets as well as the economy at large. The Fed must acknowledge its key role in causing these many historic risks and tell the American people the full story of the risks its policies have created. This requires a comprehensive, data-driven analysis that includes precise details of its actions and consequences. Without it, the Fed cannot adequately address the risks that have partly materialized as a result of its policies.

“Finally, the Fed needs to end its indefensible practice of releasing key information late on Friday afternoon, as it did with the Financial Stability Report, apparently to reduce media attention and the potential for public scrutiny, scrutiny and accountability. The Fed should be embarrassed by its practice, which is an insult to the American people and damages its credibility.”

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Better Markets is a non-profit, non-partisan and independent organization founded to advance the public interest in financial markets, support Wall Street financial reform and make our financial system work again for all Americans. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.

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