Fed unveils Warsh task forces to lead broad review
The US Federal Reserve (Fed) unveiled on Thursday the members of the task forces announced by Fed Chair Kevin Warsh at his first monetary policy meeting. The statement also reiterated that the Fed’s commitment to price stability and its maximum employment mandate is "unwavering" and will be pursued “with rigor."
Each of the task forces will be integrated by three members, amongst whom are the former Bank of England Governor, Mervyn King, the former Governor of the Reserve Bank of India, Raghuram Rajan, former Governor at the Federal Reserve Jeremy Stein and Arminio Fraga, former president of the Central Bank of Brazil.
The five task forces will be focused on communications, the balance sheet policy, improving the quality and timeliness of economic data, productivity and jobs and developing inflation frameworks.
The task forces will be supported by Fed staff and are expected to operate independently, following the evidence to produce findings for the FOMC Fed statement.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
