#styln-signup .styln-signup-wrapper { max-width: calc(100% – 40px); width: 600px; margin: 20px auto; padding-bottom: 20px; border-bottom: 1px solid #e2e2e2; } America’s Federal Reserve says it is in no rush to issue a digital currency, but it is coming under intense and increasing pressure to research and understand the design and potential of digital money. From the […] More
AdvertisementContinue reading the main storySupported byContinue reading the main storyInvestors Are Focused on Treasurys. Here’s What the Fed Could Do.Central bankers have said they aren’t worried about a pop in longer-term bond yields. If they do become concerned, they have some options.The Federal Reserve chair, Jerome H. Powell, may be asked about higher bond yields during a scheduled event on Thursday.Credit…Al Drago for The New York TimesMarch 4, 2021, 5:00 a.m. ETLonger-term interest rates have jumped in recent weeks, a move that has been broadly interpreted as a sign that investors are betting higher growth and slightly faster inflation may be right around the corner.Federal Reserve officials have mostly brushed off the increase to date, saying it is a signal of economic optimism. But many investors have wondered whether the central bank might feel a need to intervene. The adjustment has at times roiled stock markets, which tend to sink when interest rates increase, and it could weigh on consumer spending and growth if it is sustained and borrowing becomes more expensive.Jerome H. Powell, the Fed’s chair, is set to speak at noon on Thursday at a Wall Street Journal event, where he may be asked to address the recent bond activity.Many on or adjacent to Wall Street have begun to put forward a two-part question: They are curious whether the Fed will step in to keep rates low and, if so, how. Below, we run through a few of the most likely options, along with plain-English explainers of what they mean and how they work.First, a little background.The yield on a 10-year Treasury note, a reference point for the cost of many types of borrowing, has popped since the start of the year. After dropping as low as about 0.5 percent in 2020, the yield jumped to 1.6 percent during the day last Thursday. It hovered around 1.5 percent by Wednesday.That is still very low by historical standards: The 10-year yield was above 3 percent as recently as 2018, and in the 1980s it was double digits. But a rapid adjustment in longer-term rates around the world has drawn attention. Global officials like Christine Lagarde, head of the European Central Bank, have voiced concern about the increases.U.S. officials have generally painted the adjustment as a sign that investors are growing more optimistic about growth as millions of Americans begin receiving Covid-19 vaccines and the government supports the economy with spending. And while markets appear to be penciling in slightly higher inflation, Fed officials had been hoping to push price expectations — which had been slipping — a little bit higher.“If you look at why they’re moving up, it’s to do with expectations of a return to more normal levels, more mandate-consistent levels of inflation, higher growth, an opening economy,” Mr. Powell said of rates during a hearing on Feb. 23.But last week’s gyrations prompted U.S. officials to make clear they’re watching to make sure that market moves don’t counteract the Fed’s policies, which make borrowing inexpensive to encourage spending and help the economy recover more quickly.“I am paying close attention to market developments — some of those moves last week and the speed of those moves caught my eye,” Lael Brainard, a Fed governor, said at a Council on Foreign Relations webcast on Tuesday. “I would be concerned if I saw disorderly conditions or persistent tightening in financial conditions that could slow progress toward our goal.”The question is what the Fed could do if rates get too high.Lael Brainard, a Fed governor, said she was monitoring market developments. Credit…Brian Snyder/ReutersBuying longer-term bonds is one option.The Fed’s most obvious choice to push back on a surge in longer-term bond yields is to just buy more of the bonds in question: If the central banks snaps up five-year, 10-year or 30-year securities, the added demand will push up prices, forcing yields — which move in the opposite direction — lower.The Fed is already buying $120 billion in mortgage-backed securities and Treasury bonds each month, a program it started last year both to soothe markets and to make many types of credit cheaper. Right now, it’s purchasing many types of bonds, but it could shake up that approach to focus on longer-term debt.There’s precedent for such a maneuver. The Fed bought long-term bonds to push down interest rates and bolster the economy in 2011. A similar policy was used in the 1960s. Economists and business networks often call such policies either “maturity extension” — shifting future purchases toward longer-dated debt — or “Operation Twist,” which tends to refer to selling short-term notes while buying longer-term bonds.Promising to ‘cap’ certain yields is another.The Fed’s more drastic option is called “yield curve control.” While it sounds nerdy, the approach is simple. The central bank could just pledge to keep a certain rate — say the five-year Treasury yield — below a certain level and buy as many bonds as necessary to keep that cap in place.Other central banks around the world, including the Bank of Japan and the Reserve Bank of Australia, have used yield curve control. But the tool carries risks: For example, it could force the Fed to buy huge sums of bonds and vastly expand its balance sheet in a worst-case scenario. That could matter for perceptions, since politicians sometimes criticize the Fed’s growing holdings, and it might have implications for market functioning.Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, told reporters on Tuesday that she was not worried about the yield curve yet. But she suggested that if the Fed did need to do something, shifting to long-term purchases would probably be preferable.“Right now I don’t think of yield curve control as something we would implement, myself, right away,” she said.The Fed can take several steps to deal with rockiness in the bond markets.Credit…Jim Lo Scalzo/EPA, via ShutterstockAdvertisementContinue reading the main story More
AdvertisementContinue reading the main storySupported byContinue reading the main storyAs Winter Sweeps the South, Fed Officials Focus on Climate ChangeA top Federal Reserve official says climate scenario analysis could be valuable in making sure that banks mind their climate-tied weak spots.A family in Austin, Texas, kept warm by a fire outside their apartment on Wednesday. They lost power early Monday morning.Credit…Tamir Kalifa for The New York TimesFeb. 18, 2021Updated 2:28 p.m. ETA top Federal Reserve official issued a stark warning on Thursday morning: Banks and other lenders need to prepare themselves for the realities of a world racked by climate change, and regulators must play a key role in ensuring that they do.“Climate change is already imposing substantial economic costs and is projected to have a profound effect on the economy at home and abroad,” Lael Brainard, one of the central bank’s six Washington-based governors, said at an Institute of International Finance event.“Financial institutions that do not put in place frameworks to measure, monitor and manage climate-related risks could face outsized losses on climate-sensitive assets caused by environmental shifts, by a disorderly transition to a low-carbon economy or by a combination of both,” she continued.The grim backdrop to her comments is the abnormally cold weather walloping Texas — leaving millions without electricity and underlining the fact that state and local authorities in some places are underprepared for severe weather that is expected to become more frequent.Such disruptions also matter for the financial system. They pose risks to insurers, can disrupt the payment system and make otherwise reasonable financial bets dicey. That is why it is important for the Fed to understand and plan for them, central bank officials have increasingly said.Ms. Brainard pointed out Thursday that financial companies were addressing the risk by “responding to investors’ demands for climate-friendly portfolios,” among other changes. But she added that regulators like the Fed must also adapt. She raised the possibility that bank overseers might need new supervisory tools, given the challenges associated with climate oversight, which include long time horizons and limited data due to the lack of precedent.“Scenario analysis may be a helpful tool” to assess “implications of climate-related risks under a wide range of assumptions,” Ms. Brainard said, though she was careful to distinguish that such scenarios would be distinct from full-fledged stress tests.Weighing in on climate risks publicly is new territory for the Fed. Officials spent years tiptoeing around the topic, which is politically charged in the United States. The central bank only fully joined a global coalition dedicated to research on girding the financial system against climate risk late last year. The possibility of climate-tied stress tests has been especially contentious, and has recently drawn criticism from Republican lawmakers.“We have seen banks make politically motivated and public relations-focused decisions to limit credit availability to these industries,” more than 40 House Republican lawmakers said in a December letter, specifically referring to coal, oil and gas. They added that “climate change stress tests could perpetuate this trend, allowing regulated banks to cite negative impacts on their supervisory tests as an excuse to defund or divest from these crucial industries.”Jerome H. Powell, the Fed chair, and Randal K. Quarles, the vice chair for supervision — both named to their jobs by President Donald J. Trump — suggested in response that the Fed was in the early stages of researching its role in climate oversight.“We would note that it has long been the policy of the Federal Reserve to not dictate to banks what lawful industries they can and cannot serve, as those business decisions should be made solely by each institution,” they wrote last month.Mr. Powell and Mr. Quarles echoed the lawmakers’ assertion that the Fed’s bank stress tests measured bank capital needs over a much shorter time frame than climate change, though they said the Fed was working to help banks manage their risks, including those related to climate.The central bank is quickly moving toward greater activism on the topic. Its Supervision Climate Committee, announced last month, will work “to develop an appropriate program” to supervise banks’s climate-related risks, Ms. Brainard said Thursday. The Fed is also co-chair of a task force on climate-related financial risks at the Basel Committee on Banking Supervision, a global regulatory group.Though the central bank is politically independent, President Biden has placed climate at the center of his administration’s economic priorities. Treasury Secretary Janet L. Yellen has pledged to “fight the climate crisis.”Ms. Brainard, the Fed’s last remaining governor appointed by President Barack Obama, has been a leading voice in pushing for greater attention to climate issues, speaking on the matter at a conference in 2019. So has Mary C. Daly, president of the Federal Reserve Bank of San Francisco, who held that conference.“It is a fact that severe weather events are increasing,” Ms. Daly said during a webcast event this week, noting that “half the country is in a winter storm, and then in the summer they’ll be in a heat wave.”She said the Fed needed to figure out how to deal with potentially disruptive risks as they emerged given that it is responsible for the nation’s economic health, works with other regulators to protect the safety of the financial system and is the steward of the payments system — the guts of the financial system in which money is transferred and checks are processed.“We have to understand what the risks are, and think about how those risks can be mitigated,” Ms. Daly said. “Our responsibility is to look forward, and ask not just what is happening today, but what are the risks.”AdvertisementContinue reading the main story More
#masthead-section-label, #masthead-bar-one { display: none }The Jobs CrisisCurrent Unemployment RateThe First Six MonthsPermanent LayoffsWhen a $600 Lifeline EndedAdvertisementContinue reading the main storySupported byContinue reading the main storyFed Officials Debated Rate Liftoff in 2015, Offering Lessons for TodayThe Federal Reserve raised rates from near zero in 2015. The discussion back then — and developments since — will inform their future policy.The Federal Reserve Board building in Washington. The central bank raised rates in 2015 as the unemployment rate dropped.Credit…Ting Shen for The New York TimesJan. 8, 2021Updated 2:24 p.m. ETThe Federal Reserve lifted interest rates from near zero in 2015 after years of holding them at rock bottom following the 2008 global financial crisis. Transcripts from their policy discussions, released Friday, show just how fraught that decision was.The debate that played out then is especially relevant now, when the central bank has again slashed interest rates practically to zero, this time to fight the pandemic-induced economic downturn. The concerns that officials voiced over lifting rates in 2015 — that inflation would not pick up, and that the labor market had further to heal — proved prescient in ways that will inform policy setting in the years to come.The Fed, under Chair Janet L. Yellen, raised its policy rate in 2015 as the unemployment rate dropped. Officials worried that if they waited too long to nudge borrowing costs higher, they would stoke an economic overheating that would push inflation higher and prove hard to contain.The logic, at the time, was that monetary policy works with “long and variable” lags, and that it was better to start to gently normalize policy before rapid price gains actually showed up.But even back then, not everyone on the Fed’s rate-setting Federal Open Market Committee was comfortable with the plan. When the decision to lift interest rates came in December, Governor Lael Brainard seemed to question it — arguing that the labor market still had room to expand and that inflation was coming in short of the committee’s 2 percent goal. She ultimately voted for the decision alongside Ms. Yellen and her fellow policymakers.“The recent price data give little hint that this undershooting of our target will end any time soon,” Ms. Brainard said of inflation at the time, according to the transcript. That, paired with risks from a slowdown overseas, made her place “somewhat greater weight on the possible regret associated with tightening too early than on the possible regret associated with waiting a little longer.”In explaining that she would vote for the increase anyway, Ms. Brainard said she placed “a very high premium on ensuring the credibility of monetary policy” and appreciated the thoughtful process Ms. Yellen and the staff had undergone in planning to change the policy. She suggested in 2019 that moving rates up in 2015 was a mistake, and that “a better alternative would have been to delay liftoff until we had achieved our targets.”Stanley Fischer, the vice chairman at the time, laid out a concise explanation of why the committee was moving.“Why move now?” he said. “First, as the chair has emphasized, our actions become effective with a lag. Second, there are some signs of accumulating financial stability problems. And, third, the signal we will be sending will reinforce the fact that our economic situation is continuing to normalize.”Jerome H. Powell, then a Fed governor and now the chair, said at the time that remaining room for labor market gains was “probably modest” but highly uncertain, and that the participation rate — which measures people working or looking for work — might rebound.“I’m not in any hurry to conclude that the current low level of participation reflects immutable structural factors,” Mr. Powell said. “I think it’s likely to be necessary for the economy to run above trend for some time to ensure that inflation does reach our 2 percent target.”The more reluctant stances aged comparatively well. In the time since then, many economists and analysts have viewed the Fed’s pre-emptive rate increases as possibly premature. The unemployment rate continued to drop for years, but as more workers entered the job market, wages increased only moderately. Price gains remained stable, and actually a bit softer than Fed officials were hoping.As a result, the Fed has reassessed how it sets monetary policy. Mr. Powell said last year that he and his colleagues would now focus on “shortfalls” from full employment — worrying only if the job market is coming in weak, not if it’s coming in strong, as long as inflation is contained.They no longer plan to raise interest rates to fend off inflation before it shows up, officials have said, paving the way for longer periods of lower rates.AdvertisementContinue reading the main story More
AdvertisementContinue reading the main storySupported byContinue reading the main storyFed Joins Climate Network, to Applause From the LeftThe central bank joined a network of global financial regulators focused on climate risk. The response to the move underlined its tricky politics.“The public will expect that we do figure out what are the implications of climate change for financial stability, and that we do put policies in place,” Jerome H. Powell, the Fed chair, said this month at a Senate hearing.Credit…Al Drago for The New York TimesDec. 15, 2020, 4:34 p.m. ETWASHINGTON — The Federal Reserve is joining a network of central banks and other financial regulators focused on conducting research and shaping policies to help prepare the financial system for the effects of climate change.The Fed’s board in Washington voted unanimously to become a member of the Network of Central Banks and Supervisors for Greening the Financial System, it said in a statement on Tuesday. The central bank began participating in the group more than a year ago, but its formal membership is something that Democratic lawmakers have been pushing for and that Republicans have eyed warily.The Fed’s halting approach to joining underlines how politically fraught climate-related issues remain in the United States.The network exists to help central banks and other regulators exchange ideas, research and best practices as they figure out how to account for environment and climate risk in the financial sector. While the Fed had participated informally, its decision to join as a member is the latest sign of its recognition that the central bank must begin to take extreme weather events into account as they occur with increasing frequency and pose a growing risk to the financial system — whether doing so is politically palatable or not.“The public will expect that we do figure out what are the implications of climate change for financial stability, and that we do put policies in place,” Jerome H. Powell, the Fed chair, said this month at a Senate hearing. “The broad response to climate change on the part of society really needs to be set by elected representatives — that’s you. We see implications of climate change for the job that you’ve given us, and that’s what we’re working on.”Still, the latest move could incite a backlash. The announcement comes shortly after Republican House members urged Mr. Powell and the vice chair for supervision, Randal K. Quarles, in a letter on Dec. 9 not to join the network “without first making public commitments” to accept only policies that would not put the United States at a disadvantage or have “harmful impacts” on American bank customers.Republicans have been particularly concerned that increased attention to climate risk by financial regulators could imperil credit access for fossil fuel and other energy companies. For instance, banks might be less likely to extend credit to those industries if regulators viewed such loans as risky and made them harder to provide.Mr. Powell had recently emphasized that the Fed was likely at some point to join the network alongside its peers, including the Bank of England and Bank of Japan, and the central bank first indicated last month that it would soon be joining the group. Mr. Quarles said during congressional testimony that the Fed was in the process of requesting membership and expected that it would be granted, in response to questions from Senator Brian Schatz, Democrat of Hawaii.“Now that they have joined this international effort, I will expect them to take further concrete steps towards managing climate risks,” Mr. Schatz said in a statement in response the announcement on Tuesday. “That includes setting clear supervisory expectations for how banks should manage their climate risk exposure, and using tools like stress testing to hold them accountable.”The Fed did not comment on why it decided to join now and — despite several requests since Mr. Quarles’s statement — would not say when the central bank had applied to join. Joining the network requires a formal email request from a central bank’s leader or head of supervision.The move is the latest step in an evolution in which the Fed, which once rarely spoke publicly about the issue, has paid more public attention to climate change.Business & EconomyLatest UpdatesUpdated Dec. 15, 2020, 4:17 p.m. ETEuropean Central Bank will lift ban on bank dividends, a sign of cautious optimism.Top congressional leaders met to discuss a stimulus deal and a year-end spending bill before the deadline on Friday.European truck makers say they will phase out fossil fuel vehicles by 2040.The Federal Reserve Bank of San Francisco, led by Mary C. Daly, held the system’s first conference on climate last year. Lael Brainard, a Fed governor and the lone Democrat on the central bank’s board in Washington, spoke there, and she has delivered other remarks on the topic. For the first time, the Fed’s financial stability report this year included an in-depth section on financial risks posed by climate change.Even so, the Fed has been more reticent than many of its peers when it comes to embracing a role in working to alleviate climate change and manage its fallout. The Bank of England has unveiled its plans to run banks through climate stress tests — which will test how their balance sheets will fare amid extreme weather events — though they have been postponed by the coronavirus pandemic. The president of the European Central Bank, Christine Lagarde, has indicated that her central bank is considering whether it should take climate into account when buying corporate debt.Climate change is a partisan topic in the United States, so more aggressive action to combat it could open up the Fed — which prizes its independence — to political attack. The Trump administration denied or questioned the science behind climate change, and though the incoming administration of Joseph R. Biden Jr. is poised to make it a top issue, many Republican lawmakers stand ready to police the Fed’s embrace of climate-related policy.“I’m going to be raising this issue much more vociferously — I think my colleagues will as well,” Representative Andy Barr, Republican of Kentucky and the lead signatory on the Dec. 9 letter, said in an interview on Monday. Mr. Barr said he was concerned that the Fed might move toward carrying out climate stress tests or put in place other policies that would make it harder for oil and coal companies to gain access to credit.Democrats will struggle to get policies like the so-called Green New Deal through Congress, he said, and he worries they will try to carry out their policy objectives through the “backdoor” of financial regulation. Mr. Barr said both Mr. Quarles’s statement that the Fed would be joining the Network of Central Banks and Supervisors for Greening the Financial System and Mr. Powell’s recent comments caught his attention.“The enormous power of the Fed should not be weaponized to discriminate against a wide swath of American industry,” he said.But in a demonstration of the competing pressures on the central bank, groups that applauded the Fed’s announcement on Tuesday painted joining the network as merely a first step.“Given that it is responsible for the safety and security of the world’s largest economy, we hope that it will not only catch up with central banks around the world, but, in time, lead the way in addressing systemic financial risk,” Steven M. Rothstein, the managing director of the Ceres Accelerator for Sustainable Capital Markets, said in a statement. The group works with investors and has been pushing for the Fed to join the network, including in a report and letter this year.“Our economy deserves no less,” Mr. Rothstein said.AdvertisementContinue reading the main story More
