Finance

Fed Governor Waller sees need for ‘more caution’ ahead when lowering interest rates

Published

2 months ago

October 14, 2024

Christopher Waller, governor of the US Federal Reserve, during a Fed Listens event in Washington, D.C., on Friday, Sept. 23, 2022.

Al Drago | Bloomberg | Getty Images

Federal Reserve Governor Christopher Waller on Monday signaled that future interest rate cuts will be less aggressive than the big move in September as he expressed concern that the economy could still be running at a hotter-than-desired pace.

Citing recent reports on employment, inflation, gross domestic product and income, the policymaker indicated that “the data is signaling that the economy may not be slowing as much as desired.”

“While we do not want to overreact to this data or look through it, I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting,” Waller said in prepared remarks for a conference at Stanford University.

The Federal Open Market Committee at its September meeting took the unusual step of lowering its baseline interest rate by a half percentage point, or 50 basis points, to a target range of 4.75%-5.0%. In the past, the Fed has only done that during times of crisis, as it prefers to move in increments of a quarter percentage point, or 25 basis points.

Along with the cut, officials indicated the likelihood of another half point lopped off in the final two meetings of 2024, along with another full percentage point of cuts in 2025. However, Waller did not commit to a specific path ahead.

“Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year,” he said.

Key data points for the Fed have been mixed in recent days: The labor market posted stronger numbers in September after weakening through the summer, the consumer price index inflation gauge was slightly higher than expected, and GDP also has held strong.

In the final revision for second-quarter growth, the Commerce Department also punched up the level of gross domestic income gain to 3.4%, an adjustment of 2.1 percentage points from the previous estimate and closer in line with GDP. The savings rate also was adjusted much higher, to 5.2%.

“These revisions suggest that the economy is much stronger than previously thought, with little indication of a major slowdown in economic activity,” Waller said.

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Finance

Biggest banks planning to sue the Federal Reserve over annual stress tests

Published

2 days ago

December 24, 2024

Business Finance News

A general view of the Federal Reserve Building in Washington, United States.

Samuel Corum | Anadolu Agency | Getty Images

The biggest banks are planning to sue the Federal Reserve over the annual bank stress tests, according to a person familiar with the matter. A lawsuit is expected this week and could come as soon as Tuesday morning, the person said.

The Fed’s stress test is an annual ritual that forces banks to maintain adequate cushions for bad loans and dictates the size of share repurchases and dividends.

After the market close on Monday, the Federal Reserve announced in a statement that it is looking to make changes to the bank stress tests and will be seeking public comment on what it calls “significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements.”

The Fed said it made the determination to change the tests because of “the evolving legal landscape,” pointing to changes in administrative laws in recent years. It didn’t outline any specific changes to the framework of the annual stress tests.

While the big banks will likely view the changes as a win, it may be too little too late.

Also, the changes may not go far enough to satisfy the banks’ concerns about onerous capital requirements. “These proposed changes are not designed to materially affect overall capital requirements, according to the Fed.

The CEO of BPI (Bank Policy Institute), Greg Baer, which represents big banks like JPMorgan, Citigroup and Goldman Sachs, welcomed the Fed announcement, saying in a statement “The Board’s announcement today is a first step towards transparency and accountability.”

However, Baer also hinted at further action: “We are reviewing it closely and considering additional options to ensure timely reforms that are both good law and good policy.”

Groups like the BPI and the American Bankers Association have raised concerns about the stress test process in the past, claiming that it is opaque, and has resulted in higher capital rules that hurt bank lending and economic growth.

In July, the groups accused the Fed of being in violation of the Administrative Procedure Act, because it didn’t seek public comment on its stress scenarios and kept supervisory models secret.

CNBC’s Hugh Son contributed to this report.