(Photo by Brendan SMIALOWSKI / AFP)
New Federal Reserve Chairman Kevin Warsh unveiled his reform plan, establishing five working groups to study everything from inflation and policy communication to the Fed's massive balance sheet.
June 18, 2569 at 07.09:XNUMX a.m., Reuters reported that Federal Reserve Chairman Kevin Warsh announced that the government will proceed with a major review of its monetary policy framework. Five task forces were established to study key issues related to the Fed's policy. This reflects his efforts to reform the central bank; however, the approach does not yet signal any near-term changes regarding the Fed's management of its large balance sheet.
Warsh said after the first Federal Open Market Committee (FOMC) meeting under his leadership that the five working groups would begin their work in the coming weeks. The initial findings are expected to be presented in the fall, with most of the results finalized by the end of the year. Leading experts from both within and outside the field of economics will be involved.
The working group will study a number of key issues, including approaches to managing inflation, communicating monetary policy, using economic data, productivity and labor markets, as well as the impact of emerging technologies such as artificial intelligence (AI).
One of the most talked-about issues is the review of the Fed's balance sheet management, a topic Watchtch has consistently criticized since his time as a Fed governor from 2548 to 2554. He argues that the Fed holds an excessive amount of bonds following its massive asset purchases during several past economic crises.
Watch believes that the Fed's massive holdings of bonds could distort market mechanisms and lead the central bank to become too involved in issues that should be the responsibility of politicians. However, many Fed officials and economists disagree, arguing that the current system allows the Fed to effectively control short-term interest rates and does not create significant market distortions.
Despite considering balance sheet reform, the Fed continues to signal support for its current approach in the short term. The statement following the FOMC meeting indicated that the committee reaffirmed its policy of maintaining sufficient liquidity reserves in the banking system (Ample Reserves).
Furthermore, the Fed announced last week that it will continue purchasing short-term U.S. government bonds (Treasury Bills) next month to stabilize liquidity in the system and help control short-term interest rates. This means that the size of the Fed's balance sheet may continue to increase in the near future.
Experts believe that while it is possible for the Fed to reduce its balance sheet in the future, especially if regulations on banking sector liquidity are improved, major changes are unlikely to happen anytime soon. This is because the Fed's current monetary policy system is highly complex and relies heavily on large amounts of liquidity to maintain financial market stability.
refer : reuters.com
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