A speech by the Board of Governors' Michelle Bowman was given at a conference highlighting the projection of the United States economy and the prioritization that is being placed on bank supervision.
The Federal Open Market Committee (FOMC) has maintained the target range for the federal funds rate at 5-1/4 to 5-1/2 percent after tightening monetary policy over the past year and a half to reduce inflation, according to an article on the Federal Reserve website. Despite progress in lowering inflation, recent readings have been uneven. The latest personal consumption expenditure (PCE) inflation index data showed 12-month changes in total and core inflation of 3.4% and 3.7%, respectively. Some components of core services inflation have risen, raising concerns about persistent core services inflation. Higher energy prices could also reverse some of the achieved progress in decreasing overall inflation. As FOMC raised the federal funds rate, real GDP grew at a 4.9% annual rate in Q3, showing a robust economy.
"I am also closely watching liquidity conditions and Treasury market functioning, which have held up well so far even amidst large movements in yields," said Governor Michelle Bowman. "The U.S. Treasury market plays a central role in transmitting monetary policy, financing the federal government, and providing safe and liquid assets to support capital flow and credit delivery to households and businesses". She highlighted potential risks such as amplified liquidity strains if longer-dated Treasury securities abruptly sell off or if investors reposition their portfolios due to rapid increases in long-term Treasury yields.
Federal bank regulators have adopted a new rule implementing the Community Reinvestment Act (CRA), aimed at improving credit access in low- and moderate-income communities as mentioned by the Federal Reserve. The CRA was enacted in 1977 to ensure financial inclusion and equal access to credit but its complex nature is seen as outweighing its positive impacts. Notably, this rule places a significant regulatory burden on all banks, especially community ones. Despite these changes, there remains uncertainty regarding whether banks are adequately supporting their communities.
