Warsh's Limits on Fed Independence Unsettle Central Banks as $30 Trillion Eurodollar Market Awaits Clarity
Updated
Updated · Reuters · May 19
Warsh's Limits on Fed Independence Unsettle Central Banks as $30 Trillion Eurodollar Market Awaits Clarity
14 articles · Updated · Reuters · May 19
More than half a dozen central bankers told Reuters Warsh's confirmation-hearing remarks raised doubts about whether the Fed would act quickly and independently in the next global dollar-funding crisis.
Warsh said Fed independence clearly covers interest rates but not necessarily broader operations such as international finance, where he suggested closer coordination with the White House and Congress.
The concern centers on Fed dollar backstops: standing swap lines for the ECB, Bank of Canada, BOJ, BOE and SNB help prevent forced sales of U.S. Treasuries by overseas banks holding trillions in dollar assets.
Policymakers still expect no immediate shift, noting Warsh is a Fed and 2008 crisis veteran with one vote, while Jerome Powell remains chair pro tempore until Warsh is sworn in.
A less reliable Fed could accelerate the dollar's 15-year erosion in global market share, but officials say the euro is not yet built to absorb a major shift from a roughly $30 trillion eurodollar market.
How will a former chair remaining on the board shape the new Federal Reserve's policy agenda?
Can the new Fed chair deliver lower interest rates while inflation is forecast to climb to 4%?
With the Fed reducing market guidance, are investors prepared for greater economic volatility?