Balance Sheets Needs To Be In Line With Rates: Fed President

Balance Sheets Needs To Be In Line With Rates: Fed President

San Fransisco Fed President Mary Daly on Wednesday said that the Federal Reserve should keep the balance sheet policy in-line with the interest rates as the US economy is progressing at a slow pace.

Daly told the Economic Policy Research, Stanford that ‘We don’t want the balance sheet to be working at cross purposes with our interest rate policy. Rising downside risks, including slowing global growth, tighter financial conditions and rising uncertainty over trade and other policies justify that pause in rate hikes’. She said that ‘she supports a halt on further increases until inflation rises sustainably to, or even below the Fed’s 2% target, or if there are signs of overheating in financial markets’.

Daly said that the pause in rate hikes was justified as ‘Rising downside risks, including slowing global growth, tighter financial conditions and rising uncertainty over trade and other policies justify that pause in rate hikes.’

The Central Bank has paused its three-year campaign on raising interest rates and has been reducing its $4 trillion balance sheet by close to $50 billion every month the past year. The investors say that it has been impacting the financial situations.

Daly opined that if the Feds are adjusting the rates to suit the economic conditions, it should also do that with the balance sheet policy. She said ‘these two are meant to work together and not at cross purposes.’ Daly on Wednesday said that “economy in the US is slower than she had thought it would be and added that the expansion of the economy has not yet reached a dead end though it’s slow, ‘There’s nothing on the radar that says we’re slipping into recession.’

Last month the Fed said that the target range for short-term interest rates was reduced from 2.5% to 2.25% and added that it would be patient while adjusting rates in the near future and also take the financial and economic conditions into account while making the balance sheet policy. The policy meeting that was held in January said that the Fed would announce its plan to reduce the balance sheets sometime later this year, but meanwhile the race continues.

The San Francisco Fed President Mary Daly added that the US economy is now more sustainable and that is a good sign as it can prevent a recession. The economy grew at 3% which is more than what was expected and forecast for 2019 is for annual growth of 2%.