Former VP of Fed Research Pens Criticism of Central Bank

James A. Kahn, former vice president of research at the Federal Reserve Bank of New York wrote on CNBC:

The Fed has provided only limited information on how or when serious policy normalization will occur. Recent statements indicate that the interest rate on reserves will remain above the fed-funds target range, and asset drawdown will be limited to attrition from not reinvesting income. For now, the committee has breathing room: With 3-month rates remaining below 0.25 percent, a strong dollar, and low energy prices, there is little pressure for additional moves. But as conditions change, the aforementioned plans are not sustainable.

The Fed should begin unwinding now, not wait until conditions force them. The rate on reserves could be lowered to 0.25 percent, accompanied by modest asset sales, without triggering a large response. If managed well, this “quantitative tightening” will be benign — the mirror image to quantitative easing’s modest impact—but will reduce uncertainty. And it will put the onus for economic revival where it belongs, on fiscal and regulatory policies.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza