Bank of America Chairman and CEO Brian Moynihan is the latest Wall Street figure to warn about the Fed's independence, emphasizing that maintaining the Fed's independence is crucial for the markets.
Moynihan stated on a Sunday program in the United States that if the United States does not have an independent Federal Reserve, the market will punish everyone, and everyone knows this.
The selection process for the successor to the Federal Reserve chairman is currently underway. Current chairman Jerome Powell will leave office in May next year, and US President Trump is conducting extensive interviews for the new chairman, which has sparked widespread concern in the market.
US President Donald Trump said last week that he hopes the next Federal Reserve chairman will maintain low interest rates and will never disagree with him. Since taking office in January, Trump has been pressuring the Fed to lower interest rates to stimulate overall US economic growth.
The high-profile Federal Reserve
The new chairman will likely be chosen from two candidates: former Federal Reserve Governor Kevin Warsh and National Economic Council Director Kevin Hassett. Warsh has been a critic of the Fed and is seen as a leading figure who will lower interest rates in the near term; Hassett is a staunch supporter of Trump’s economic agenda, which means he is also inclined to push for the Fed’s easing policy.
For Moynihan, Trump's appointment of a new Federal Reserve chairman is nothing new; US presidents typically appoint people they trust to the position. However, in his view, the problem lies in the fact that the Federal Reserve is already under too much public scrutiny.
Moynihan stated that people are too obsessed with the Federal Reserve. The United States is a private sector-driven country, with entrepreneurs, doctors, lawyers, and people from all walks of life driving economic development. If people believe that the US economy can be maintained simply by the Federal Reserve raising or lowering interest rates, then the US economy is clearly off track.
He emphasized that the Federal Reserve has played an important role in stabilizing the economy, but this is what they should do because the institution is the lender of last resort for the United States, and the general public should not actually know about the existence of the Federal Reserve.
Besides questions related to the Federal Reserve, Moynihan also discussed the pros and cons of lowering interest rates. He does not want US mortgage rates to return to the low level of 3%, as this is detrimental to US economic growth and may only be offsetting the effects of a recession. However, many on Wall Street believe that the federal funds rate will fall to a low of 3%, while long-term interest rates will remain between 4% and 4.5%.
From this perspective, Moynihan does not agree with the Trump administration's argument that lowering interest rates can stimulate US economic growth.
(Article source: CLS)
