Since the beginning of the pandemic, concerns have been raised about the Federal Reserve’s approach to handling economic challenges.
While the Fed’s perceived political involvement has garnered attention, the more pressing issue at hand is the way it tackles inflation and interest rates using what some describe as a sledgehammer when a scalpel might be more appropriate.
Instead of implementing infrequent and substantial moves of 25, 50, or even 75 basis points, which can disrupt financial markets and investment strategies, the argument put forth is that the Fed should opt for smaller, more frequent adjustments of five or ten basis points.
The goal is to create a smoother economic landscape, as opposed to the sharp and unpredictable fluctuations that are currently experienced.
FILE PHOTO: A Wall St. sign is seen outside the New York Stock Exchange (NYSE) in the financial district in New York City, U.S.
Rate curve
The proposed ideal scenario envisions a gradual and controlled interest rate curve, consistently hovering between 3% and 4%, within a relatively narrow range.
This approach would entail a longer-term cycle, spanning 10 or 20 years, rather than the shorter two- or three-year cycles witnessed today.
By implementing minor basis-point adjustments over a few weeks, financial markets, lending practices, and the stock market would adapt in a more measured manner.
These adjustments would be small, fostering a more rational and predictable economic environment conducive to better planning.
The debate over the Fed’s approach to monetary policy is ongoing, and while the central bank continues to grapple with economic challenges, alternative strategies like the one proposed here could reshape the way it addresses these issues in the future.
Ahron Young is an award winning journalist who has covered major news events around the world. Ahron is the Managing Editor and Founder of TICKER NEWS.
Bitcoin soared to nearly $80,000, reaching unprecedented levels following Donald Trump’s decisive presidential victory earlier this week.
This marks a significant 65.4% increase from its January low of $38,505, underscoring the cryptocurrency’s remarkable growth this year.
The surge is largely attributed to President-elect Trump’s commitment to establishing the United States as “the crypto capital of the planet,” signaling a potential shift toward more favorable regulations for digital currencies.
Investors are optimistic that the incoming administration’s pro-crypto stance will further bolster the market, potentially leading to sustained growth in the sector.
Analysts suggest that this momentum could pave the way for Bitcoin to reach even higher valuations in the near future.
As Trump’s presidency approaches, Fed Chair Jerome Powell signals he won’t back down on protecting the central bank’s autonomy.
With the election results still rolling in, Federal Reserve Chair Jerome Powell has already made it clear that he intends to uphold the Fed’s independence, even if it means clashing with the new administration.
In a statement on Thursday, Powell declared he would not resign if President-elect Trump asked him to, asserting it would be illegal for any president to fire or demote a sitting Fed governor.
This stance comes amid signals from Trump’s team indicating they may seek influence over the Fed’s monetary policies, including interest rate decisions, challenging the longstanding norms that keep the Fed separate from politics.
Not stepping down
Powell’s terse response to questions on the issue emphasized his commitment: when asked if he would step down at Trump’s request, Powell replied simply, “No.” And when asked if the president could legally demote Fed governors, he affirmed, “not permitted under the law.”
Historically, Trump has shown impatience with Powell’s decisions, especially on interest rates.
If Trump tries to replace Powell or other Fed leaders prematurely, he could face legal challenges and market backlash.
Economists argue that an independent Fed actually benefits Trump’s agenda by stabilising rates.