Skip to main content

Is the Fed Too Weak to Contain Another Meltdown?

Jan 05, 2016
Federal Reserve Vice Chairman Stanley Fischer has a message for the nation: Do not expect the central bank to ride to the rescue in the event of another financial meltdown

Federal Reserve Vice Chairman Stanley Fischer has a message for the nation: Do not expect the central bank to ride to the rescue in the event of another financial meltdown.

According to a Bloomberg report, Fischer told the audience at the American Economic Association’s (AEA) Annual Meeting in San Francisco that that Federal Reserve lacks the appropriate regulatory powers to contain bubble conditions involving housing or other asset-based sectors of the economy.

"In the United States, responding to such problems with these tools would require inter-agency coordination," Fischer said, referring to other federal regulatory entities that are required to cooperate with the Fed in emergency situations. Fischer complained that this set up "could make their use cumbersome at critical moments."

Fischer blamed Congress in restricting the Fed’s ability to address crisis situations, citing 2010 legislation that was passed after the Fed’s unilaterally rescued ailing Wall Street giants during the 2008 economic crash. He also cited how central banks in other nations have more powers to address meltdowns, adding that he was uncertain if the Fed could provide any meaningful assistance.

"We won’t know until it’s very late," Fischer complained, noting that "we have to worry about a great deal" about this potential problem.

However, Cleveland Federal Reserve President Loretta Mester was less agitated over a weakened Fed’s role in a weakened economy. Speaking at the AEA Meeting, she observed that last month’s interest rate hike and the promise of additional rate increases this year "helps to mitigate any potential for building risks to financial stability stemming from excessive leverage or from investors taking on risks they are ill-equipped to manage in a search for yield."

About the author
Published
Jan 05, 2016
Co-Founder Mat Grella Terminated From NEXA

NEXA CEO Kortas states negotiations regarding the buyout will continue.

Mar 27, 2024
Comings And Goings At AmeriHome

Chief Operating Officer John Hedlund announced his retirement on Thursday in a LinkedIn post.

Mar 22, 2024
Rocket's Tim Birkmeier To Retire

Birkmeier is bidding farewell after a 28-year career at Rocket Companies.

Mar 21, 2024
How NAR’s Settlement Impacts Homebuying

While the settlement's silver lining is that homes are expected to become more affordable, many uncertainties loom over the housing market.

Mar 19, 2024
NAR Reaches $418 Million Settlement

The association agreed to give home sellers the option of compensating agents.

Mar 15, 2024
U.S. Non-Bank Mortgage Lenders Surge Amid Industry Consolidation, Fitch Ratings Reports

As smaller players exit the market, scaled originators like UWM and PennyMac Financial dominate, but challenges persist with low origination volume and pressured margins amidst rising interest rates.

Mar 14, 2024