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Federal Reserve Bank spoke about the main risk to the US economy

UNITED STATES (OBSERVATORY NEWS) — The head of the Federal Reserve Bank (FRB) of St. Louis, James Bullard, said that one of the main risks is a slowdown in the economy stronger than most forecasts.

Bullard, who has the right to vote on the US Federal Reserve’s Open Market Operations Committee (FOMC), was one of the most staunch supporters of lower interest rates in the US this year.

However, he did not say anything about the desirability of further reducing the cost of short-term borrowings at present.

“The sharp change in monetary policy by the US Federal Reserve Market Open Market Committee in 2019 was an attempt to defend itself against downward risks,” Bullard said about a quarter-percentage point cut in interest rates that the Fed made in July and September.

The Fed “may opt for further policy easing, but a decision will be made at each meeting separately,” he added.

Minneapolis Federal Reserve President Neil Kashkari, one of the main proponents of rate cuts who currently has no voting rights at the meetings of the US Federal Open Market Operations Committee, commented on monetary policy in an interview with the Wall Street Journal last week.

“I think that monetary policy is currently neutral or perhaps a bit restraining,” he said. “If the economic data follows its current trend, I will advocate for a new reduction in the key rate. I don’t know how far we are will have to stop by. ”

The Fed is cutting rates to help mitigate risks to the economy, the source of which is a slowdown in the global economy and uncertain global trade prospects.

At the same time, economic activity in the USA outside the manufacturing sector remains relatively healthy, and for this reason some Fed leaders object to lowering rates.

“The effect of (policy easing) turned out to be larger than one would expect from only the last two cuts in interest rates, since at the end of last year the Fed was expected to further increase rates in 2019. Currently, the US monetary policy is much more softer than at the end of last year, “he added.

The US Federal Reserve again launched the “printing press” in October, but officially refused to admit it.

The release of the Federal Reserve Bank (FRB) of New York, which says that the Fed will begin to buy short-term Treasury bonds in the market in the amount of $ 60 billion per month, was released on October 11.

Operations will last at least until the end of the second quarter of 2020, and their total volume will be $ 510 billion.

In parallel, the Fed will reinvest in treasury bonds proceeds from mortgage-backed securities, which is an additional $ 20 billion per month.

As a result, the American Central Bank will pump the market with liquidity of $ 80 billion monthly, of which $ 60 billion is a direct issue.

But, despite this information, the Fed emphasized that these actions should not be taken as the beginning of a new program of quantitative easing (QE).

The press release notes that these operations are technical in nature and have nothing to do with the conduct of monetary policy, the key goal is to normalize the situation in the money market and replenish the liquidity of banks.


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